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Vehicular ad hoc networks (VANETs) involves vehicle to vehicle (V2V) and vehicle to infrastructure (V2I) communication and has received a greater attention in the recent years. Though safety is the primary motive for the development of vehicular ad-hoc network, they also facilitate applications like managing the traffic flow, monitoring the road conditions, dissemination of data and many more. Efficiency of all these applications depends on density estimation. Of the various approaches clustering is demonstrated to be an effective approach. In this paper a clustering approach for traffic monitoring and routing is proposed where the Cluster Head(CH) election is done based on distance and direction information. Since clusters are formed all along the road, CH's will take the responsibility of routing the packet to destination. The simulation results show better stability, accurate density estimation in the cluster, better End-to-End delay and good delivery ratio. The protocol used is 802.11p with Wave Short Message (WSM) which is proved to be best technology designed for VANETs environment. The performance of the algorithm is analyzed using NCTUns simulator.