Volume-Weighted Average PriceVWAP
VWAP is the average price of all trades in a period weighted by their volume, often reset each trading day and used as a fair-value reference.
VWAP answers a simple question: what is the average price everyone has paid today, giving more weight to prices where more shares traded? Institutions use it to judge whether they bought or sold well; day traders use it as a line of intraday fair value, buying pullbacks to it in strong days and fading moves away from it in quiet ones. This entry shows the calculation, how the line behaves through the day, and its limits.
- Category
- Indicators and Tools
- Reading time
- 5 min
- Also called
- Volume weighted average price, Anchored VWAP, VWAP indicator
- Updated
VWAP in plain words
If 1,000 shares trade at $10 and 3,000 at $11, the simple average of the two prices is $10.50, but the volume-weighted average is $10.75 — because more shares changed hands at $11.
VWAP does that continuously through the day: each trade’s price is weighted by its size.1 Price above VWAP means today’s buyers on average are in profit; below VWAP, they are on average at a loss. See Volume.
How VWAP is calculated and used, step by step
Typical price per bar
Many platforms use (high + low + close) ÷ 3 for each bar.
Multiply by volume
Typical price × volume for each bar.
Accumulate from the start
VWAP = cumulative (price × volume) ÷ cumulative volume since the session started.
Reset each session
Standard VWAP restarts at the open; anchored VWAP starts from a chosen event instead.
Read the position of price
Holding above a rising VWAP suggests buyers in control intraday; below a falling VWAP, sellers. See Trend.
Use it as a reference
Pullbacks to VWAP, or extensions far from it, are common intraday decision points. See Day Trading.
Worked examples
Example 1 — Calculating VWAP
CalculationThree 5-minute bars: typical prices $50.00, $50.40, $50.20 with volumes 20,000, 50,000, 30,000.
| Σ price × volume | 1,000,000 + 2,520,000 + 1,506,000 = 5,026,000 |
| Σ volume | 100,000 |
| VWAP | $50.26 |
The heavy volume at $50.40 pulls VWAP above the simple average of $50.20.
Example 2 — A pullback to VWAP
PullbackA stock opens strongly and trades above a rising VWAP. At 11:00 it pulls back to VWAP at $50.30 and bounces. A trader buys at $50.36, stop $50.05, target the morning high $51.10.
| Risk | $0.31 |
| Reward | $0.74 |
| Reward-to-risk | ≈ 2.4 : 1 |
In a strong intraday trend, VWAP often acts like dynamic support. See Support and Resistance.
Example 3 — Judging an execution
BenchmarkA fund buys 200,000 shares during the day at an average of $50.18. The day’s VWAP is $50.26.
| Difference | $0.08 a share better than VWAP |
| On 200,000 shares | ≈ $16,000 |
Institutions use VWAP as a benchmark for execution quality.2 See Implementation Shortfall.
VWAP vs. moving averages
| Aspect | VWAP | Moving average |
|---|---|---|
| Weighting | By volume | Equal (SMA) or recent (EMA) |
| Resets | Each session (or from an anchor) | Never; rolling window |
| Typical use | Intraday fair value, execution benchmark | Trend direction on any timeframe |
| Needs volume data | Yes | No |
How traders use VWAP
Intraday bias
Trading long above VWAP and short below it is a simple intraday filter.
Entries
Pullbacks to VWAP in trending days offer defined-risk entries.
Execution benchmark
Large orders are judged against VWAP. See Best Execution.
Anchored VWAP
Anchoring to an earnings gap or a major low shows the average cost of buyers since that event. See Price Gap.
Advantages and disadvantages
Advantages
- Incorporates volume, not just price.
- Widely watched by institutions and day traders.
- Simple, objective intraday reference.
Disadvantages
- Mostly an intraday tool; less meaningful across many days.
- Lags more as the day goes on, because of the accumulated volume.
- Depends on volume data, which varies between sources.
- Spot forex lacks central volume; tick volume is a substitute. See Tick Volume and Real Volume.
Going deeper
Read as far as you need. Each level builds on the one before it.
Early in the day vs. late
Beginner
Early in the session VWAP moves quickly with each bar; by the afternoon it barely moves because so much volume is already included.1
VWAP bands
Intermediate
Some platforms draw bands at standard deviations above and below VWAP. Prices far outside the bands are stretched relative to the day’s average, which some traders use for mean-reversion trades. See Mean Reversion.
VWAP execution algorithms
Advanced
Brokers offer algorithms that split a large order through the day in proportion to expected volume, aiming to execute close to VWAP and reduce market impact. See Market Impact.
Common mistakes
Using daily VWAP on multi-day charts
It resets each session; use anchored VWAP for longer views.
Treating VWAP as a hard level
Price often crosses it repeatedly in quiet sessions.
Ignoring the session’s character
On trend days VWAP is support/resistance; on range days price chops around it.
Trusting thin volume
In illiquid stocks VWAP can be dominated by a few large prints.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- VWAP is the volume-weighted average price since the session started.
- VWAP = Σ(price × volume) ÷ Σ volume.
- Price above VWAP suggests intraday buyers are in control; below, sellers.
- Institutions use it as an execution benchmark.
- Anchored VWAP extends the idea from any chosen event.
Frequently asked questions
Is VWAP a good indicator for swing trading?
What does it mean when price is above VWAP?
Does VWAP work for crypto?
Further learning
- Volume
The ingredient that makes VWAP different.
- Day Trading
Where VWAP is used most.
- Moving Average
The price-only alternative.
- Liquidity
Why VWAP matters for large orders.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- StockCharts ChartSchool. Volume-Weighted Average Price (VWAP) (opens in a new tab) Checked .
- IG. VWAP definition (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.