Overlays · Indicator
VWAP is the average price weighted by volume since the session opened, widely used to benchmark execution and to judge intraday fair value.
Overview
Volume Weighted Average Price is the average price weighted by volume for the current session. Rather than treating every bar equally, it weights each price by the quantity traded at that price, so a heavy bar moves the line much more than a quiet one. The result is a single number describing the average price at which business was actually done since the anchor point, which is a more meaningful reference than a simple average when volume is unevenly distributed through the day.
It is widely used to benchmark trade execution and identify intraday fair value. Institutions that need to work a large order over a session are frequently measured against VWAP: filling below it on a buy programme counts as a good execution, filling above it does not. That creates real, mechanical demand around the line, which is a large part of why intraday price so often gravitates back towards it and why the level attracts attention from participants who have no interest in the benchmark itself.
VWAP is cumulative from its anchor and resets when a new anchor period begins. Early in a session it is computed from very few bars and moves erratically; by the middle of the session it has accumulated enough volume that it becomes a stable, slow-moving reference. This is why VWAP is primarily an intraday tool: on a daily chart with a session anchor it resets every bar and carries no information.
How it is calculated
Each bar contributes its source price multiplied by its volume. Those products are summed from the anchor, as is the volume itself, and the running total of price-times-volume is divided by the running total of volume. Because both sums are cumulative, every bar since the anchor remains in the calculation for the rest of the period.
The default source is hlc3, the average of the high, low and close, which approximates the typical price traded within the bar better than the close alone. The anchor determines when the cumulative sums reset to zero.
Typical price = (high + low + close) / 3 VWAP[i] = sum(Typical price * Volume) / sum(Volume), cumulative from the anchor
Inputs
How to read it
Price above VWAP means the average buyer since the anchor is in profit and the session has a bullish tilt; price below means the opposite. Many intraday traders use nothing more than this side test to decide whether they are looking for long or short setups, then use other tools for entry.
The line's slope carries information too. A VWAP rising steadily through the session with price holding above it describes steady accumulation. A flat VWAP with price crossing back and forth describes a balanced session where the market has found an accepted price, and those sessions frequently end near the line.
Distance from VWAP is a rough measure of how stretched the session is. Price a long way above the line has moved well beyond where most of the day's business was done, which is the setup mean-reversion traders look for. The VWAP Bands variant makes that judgement precise by scaling distance in standard deviations rather than leaving it to the eye.
Signals to look for
Price that has spent the session below VWAP pushing back above it and holding is read as a shift in intraday control. Traders commonly use the line itself as the reference level for whether the reclaim is still valid.
In a trending session, the first pullback to VWAP is watched closely because it is the point where participants working benchmark orders are most likely to be active. A hold and resumption is treated as trend continuation.
Price approaching the line from below and turning away without closing above it is read as the session's sellers defending the average price, and is a common continuation reference in a downtrend.
Limitations
Frequently asked questions
VWAP is the average price weighted by volume since the session opened, widely used to benchmark execution and to judge intraday fair value.
Price above VWAP means the average buyer since the anchor is in profit and the session has a bullish tilt; price below means the opposite. Many intraday traders use nothing more than this side test to decide whether they are looking for long or short setups, then use other tools for entry.
VWAP reclaim: Price that has spent the session below VWAP pushing back above it and holding is read as a shift in intraday control. Traders commonly use the line itself as the reference level for whether the reclaim is still valid.
VWAP is anchored and cumulative, which makes it meaningless on timeframes at or above the anchor period. A session-anchored VWAP on a daily chart resets every bar and simply reprints the typical price.
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