The line big players use to judge whether they bought cheap or expensive. Here is how VWAP is calculated, why price keeps coming back to it, and how to use it intraday.
The session's average price, with every trade weighted by its volume.
How it differs from an MA
A moving average only looks at price. VWAP accounts for how much money traded at each level.
Used for
Seeing who controls the day: buyers (price above) or sellers (price below).
Weak spot
It's anchored to the session start: jumpy early in the day, nearly useless on higher timeframes.
What it is
VWAP (Volume Weighted Average Price) is the average price weighted by volume. For each candle the typical price (high + low + close, divided by three) is multiplied by volume and accumulated from the start of the session. The total is divided by the session's total volume.
The result is one line that answers a simple question: at what average price did the market actually trade today. The more volume a level saw, the harder it pulls the line toward itself.
Price holds above VWAP and pullbacks to the line get bought. Illustrative data.
Why it works
Funds and large traders measure the quality of their execution against VWAP. Buying below VWAP is good, above it means overpaying. So large-order algorithms try to build positions near this line rather than chase price.
That creates two effects:
Reversion to the line. When price runs far from VWAP, big buyers stop buying "expensive", and price often comes back to the average.
Support and resistance. On a trend day VWAP acts as a dynamic level: in an uptrend pullbacks to it get bought, in a downtrend rallies into it get sold.
How to use it
01
Read the side of the day
Price spends most of the session above VWAP — a buyers' day; below it — a sellers' day.
02
Trade with the day
Longs on a pullback to VWAP on a bullish day, shorts on a rally into it on a bearish day.
03
Wait for a reaction
You need a rejection candle at the line, not just a touch. A break of VWAP with a close beyond it signals control passing to the other side.
04
Stop beyond the line
With a margin beyond VWAP or beyond the last swing.
VWAP is an intraday tool. On the daily chart and above, standard VWAP loses its meaning: use an anchored VWAP from a key point (a low, a news event, a breakout) instead.
Common mistakes
Trading the first minutes of the session
Early in the day VWAP has little data and jumps along with price. Let the market take shape first.
Buying just because price is below VWAP
"Below average" doesn't mean "about to reverse". On a bearish day price can stay under the line all session.
Confusing VWAP with a moving average
A moving average forgets old candles; VWAP accumulates the whole session and accounts for volume.
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