Chapter 2
What is VWAP?
Volume Weighted Average Price: intraday price reference
What is VWAP?
VWAP (Volume Weighted Average Price) is the average price since the start of the trading day, weighted by volume at each price level. Unlike a simple moving average, it is volume-weighted: giving more weight to levels with higher trading activity.
VWAP is a widely used reference point in financial literature. The expression "I bought below VWAP" means a purchase was made at a level below the volume-weighted average price for that day.
VWAP is a widely used reference point in financial literature. The expression "I bought below VWAP" means a purchase was made at a level below the volume-weighted average price for that day.
Why does VWAP matter?
- Represents the market's intraday fair value
- Algorithmic trading systems use VWAP as a benchmark
- Above VWAP = buying pressure dominant, below = selling pressure dominant
- Algorithmic trading systems use VWAP as a benchmark
- Above VWAP = buying pressure dominant, below = selling pressure dominant
How to use VWAP?
VWAP Bounce: In an uptrend, a long entry opportunity when price pulls back to VWAP. In a downtrend, a short opportunity when price rises to VWAP.
VWAP Cross: If price breaks VWAP downward with volume confirmation = short. Breaks upward with volume confirmation = long.
VWAP Cross: If price breaks VWAP downward with volume confirmation = short. Breaks upward with volume confirmation = long.
This content is for education and analysis only, not investment advice. Market tools offer probability and context, not certainty; the decision is the user responsibility.