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VWAP is volume-weighted average price, reflecting average price level traded over a specific period. VWAP is widely used in intraday and institutional trading as execution benchmark and trend judgment tool.
VWAP = Σ(Typical Price × Volume) / Σ Volume Where: Typical Price = (High + Low + Close) / 3 Cumulative calculation: VWAP = Σ(TP × V) / Σ(V) Accumulated from trading day start to current moment Note: VWAP typically resets at start of each trading day
Intraday VWAP: Calculated from trading day start, primary reference for intraday trading
Anchored VWAP: Calculated from specific time point (like significant event)
Rolling VWAP: Calculated using fixed-period rolling window
VWAP Bands: VWAP plus/minus standard deviation, similar to Bollinger Bands
Price > VWAP: Bullish, buyer strength strong
Price < VWAP: Bearish, seller strength strong
Price Breaks Above VWAP: Buy signal, trend may turn bullish
Price Breaks Below VWAP: Sell signal, trend may turn bearish
VWAP as Support: In uptrend, price pullback to VWAP finds support
VWAP as Resistance: In downtrend, price bounce to VWAP meets resistance
Price Far from VWAP: Possible mean reversion
VWAP is primarily used for intraday trading, helping traders judge whether current price is reasonable. Institutional traders often use VWAP as execution benchmark, ensuring average fill price of large orders is close to VWAP. Price above VWAP indicates intraday bullish, below indicates bearish. Many intraday traders seek entry opportunities when price pulls back to VWAP. VWAP can also identify intraday trend strength: price consistently above VWAP indicates strong uptrend, consistently below indicates strong downtrend.
Reflects true average trading price, widely used by institutions creating self-fulfilling prophecy, provides dynamic support/resistance, suitable for intraday trading, combines price and volume information
Only applicable to intraday trading, unreliable during low volume periods, not applicable to forex markets, significant lag, requires real-time volume data
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