VWAP
The average price over a session, weighted by the volume traded at each price.
Also called: volume weighted average price
Written by Javier Sánchez Ros
In plain language
VWAP weights every price by how much actually traded there, so it reflects where business was really done rather than where price merely visited.
It resets each session, which makes it an intraday reference rather than a trend tool.
Institutions use it as an execution benchmark — filling below VWAP is a good buy by that standard — which is part of why price so often reacts around the line.
The formula
VWAP
Σ (Price × Volume) ÷ Σ Volume
- Σ
- Summed across the session so far
Worked through
Price at $34.80 with VWAP at $34.15
- VWAP
- $34.15
- Price
- $34.80
- Reading
- buyers in control today
- Long stop belongs
- below $34.15
VWAP is the average price weighted by the volume that traded there, so it is roughly the price the day’s participants collectively paid. Above it, the average position taken today is in profit; below it, underwater.
That is why institutional desks care about it and why it acts as a level. A trader filling a large order over the session is measured against VWAP, which creates real demand to buy under it and real supply above — participation that exists for reasons unrelated to any chart pattern.
For an intraday long, it gives the stop a non-arbitrary home. Below VWAP the premise that buyers are in control is no longer supported, which is a better reason to be out than a round number or a fixed percentage.
One property to respect: it resets each session. VWAP says nothing about yesterday, and it is nearly meaningless in the first few minutes of trading, when very little volume has accumulated and the line jumps around on small prints.
Why it matters
VWAP provides an objective intraday reference for whether buyers or sellers currently have the upper hand, and a natural level to place stops beyond.
Common mistakes
- Using VWAP on a daily or weekly chart, where the session reset makes it meaningless.
- Treating it as support or resistance without watching how price actually behaves at it.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The number of shares, contracts or units traded during a period.
A histogram showing how much volume traded at each price level rather than in each period.
The average price over a set number of periods, recalculated as each new period closes.
How easily an asset can be bought or sold without moving its price.
The period each candle on a chart represents, from one minute to one month.