What is VWAP?
In short
Volume-weighted average price: Σ(price × volume) ÷ Σvolume since the session open. It resets every day.
Also known as: volume weighted average price
VWAP (volume-weighted average price) is the average price of all trades since the start of the day, with each price "weighted" by how many shares traded at it. Prices where a lot of trading happened influence the average more.
Formula
VWAP = Σ(price × volume) ÷ Σvolume, calculated from the start of the regular session and reset every day.
Charting platforms usually use each bar's typical price: (High + Low + Close) ÷ 3.
Why it matters
VWAP is the "average cost" of everyone who traded that day. If price is above VWAP, most of today's buyers are in profit and intraday sentiment favours buyers; below it, the opposite. Large institutional investors often judge big orders against VWAP: buying below VWAP is considered good execution.
How it is used
- As dynamic intraday support or resistance.
- As a trend filter: above VWAP — longs only; below — caution.
- To judge an entry price: if price has stretched far from VWAP, chasing is risky.
Limitations
VWAP is an intraday indicator. On daily and higher timeframes it loses its meaning. Early in the session it is based on little data and moves quickly; late in the day it barely moves.
The amber line is VWAP. After the open price fell to $148.60 and stayed below VWAP. The 10:15 candle closed above it at $150.20 on rising volume (72k). The 11:00 pullback touched VWAP (~$150.30) and bounced — buyers defended the "fair price".
Example
Illustrative case, three groups of trades since the open:
- 1,000 shares × $50 = $50,000
- 1,000 shares × $51 = $51,000
- 3,000 shares × $52 = $156,000
Σ(price × volume) = 50,000 + 51,000 + 156,000 = $257,000. Σvolume = 5,000 shares.
VWAP = 257,000 ÷ 5,000 = $51.40.
The simple average price would be (50 + 51 + 52) ÷ 3 = $51.00. VWAP is higher because most of the trading happened at $52. If price is now $51.80, it is above VWAP — most of today's buyers are in profit.
Mistakes and tips
Don't use VWAP on a daily chart — it resets every day and only makes sense intraday.
Check whether pre-market data is included: it can change the VWAP value noticeably.
When price has stretched far from VWAP, waiting for it to come back toward the line usually gives a better R:R than chasing.
Frequently asked questions
- Should I buy when price is above VWAP?
- It only tells you intraday sentiment favours buyers. A decision also needs a level, the trend and a risk plan.
- Does VWAP reset every day?
- Yes, standard VWAP is recalculated from the start of each trading session. Multi-day variants exist (such as VWAP anchored to a specific date), but they are set up separately.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
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