Volume Weighted Average Price
The average price weighted by volume throughout the trading day — the institutional benchmark for execution quality and a key intraday support/resistance level.
Description
VWAP shows where most trading has occurred throughout the day by weighting price by volume — a high-volume candle at a certain price pulls VWAP toward it more than a low-volume candle. Institutions use VWAP as an execution benchmark: a trader who bought the full day “at VWAP” executed at the market’s average price. This institutional awareness makes VWAP a self-fulfilling support and resistance level.
How It Works
VWAP = cumulative sum of (typical price × volume) / cumulative sum of volume. Typical price = (high + low + close) / 3. Calculated intraday and reset at the start of each trading session. Because it resets daily, VWAP is inherently an intraday tool. Multi-day VWAP (anchored VWAP) can be set to start from any user-defined point in time.
How to Read It
Price above VWAP: buyers are in control for the session; the bias is long. Price below VWAP: sellers are in control; the bias is short. Institutions often buy dips to VWAP and sell rallies to VWAP as they execute large orders around the average. A strong break above VWAP with volume on the second test often marks the start of a directional move.
Common Uses
- Intraday trend direction (above/below VWAP)
- Institutional support and resistance
- Execution quality benchmark for large orders
- Entry confirmation in conjunction with price structure
Caveats
VWAP is an intraday tool — it loses meaning on daily or higher charts where it reduces to a simple daily average. It is also less useful in extended hours or on low-volume instruments where large single trades distort the calculation. Anchored VWAP (starting from a user-chosen date) is more flexible but requires judgment about the correct anchor point.