What is VWAP?
The average price weighted by volume, showing the true average price paid by all traders throughout the day.
Think of it like this
Like calculating your average grocery cost by how much you bought at each price, not just the prices you saw.
Formula
VWAP = Cumulative (Price × Volume) ÷ Cumulative Volume- Typical Price: (High + Low + Close) ÷ 3 for each period
- Volume Weight: More volume = more weight in average
Why it matters
- Institutional traders benchmark against VWAP
- Shows if you got a good execution price
- Acts as dynamic support/resistance
- Resets each trading day
What's a good value?
Price > VWAP
Bullish
Buyers paying above average
Price < VWAP
Bearish
Sellers accepting below average
Price at VWAP
Fair Value
Price at average transaction level
Cross VWAP
Trend Shift
Intraday trend may be changing
Real-world example
Day traders often buy below VWAP and sell above VWAP to trade mean reversion.
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