VWAP (volume-weighted average price) is the average price of every contract traded so far in the session, weighted by how much traded at each price. It answers a simple question: what is the average price everyone has paid today?
How it's calculated
For each bar, multiply the typical price by the volume, add those up from the start of the session, and divide by the total volume so far. VWAP resets every session. Many platforms also draw standard deviation bands around it.
Why it matters
- Institutions benchmark against it. A fund buying a large position all day is often judged on whether it beat VWAP, so many large orders work around it.
- It shows who is in control. Price above VWAP means the average buyer today is in profit; below, the average buyer is underwater.
- It acts as dynamic support and resistance in trending sessions, much like a moving average, but built from volume.
| Situation | Common reading |
|---|---|
| Price holding above a rising VWAP | Buyers in control; pullbacks to VWAP are buying opportunities |
| Price holding below a falling VWAP | Sellers in control; rallies to VWAP are selling opportunities |
| Price crossing back and forth | Balanced, ranging day; VWAP acts as a magnet |
| Price at +2 or −2 standard deviations | Stretched; mean reversion more likely in a range day |
Anchored VWAP
Anchored VWAP starts the calculation from a point you choose, such as a major swing low, an earnings release or the start of the week. It shows the average price of everyone who has traded since that event, which makes it a useful level in multi-day trends.
Worked example: VWAP on three bars
Bar 1: price 100, volume 2,000. Bar 2: price 102, volume 1,000. Bar 3: price 101, volume 1,000.
VWAP = (100 × 2,000 + 102 × 1,000 + 101 × 1,000) ÷ 4,000 = 100.75. The heavy volume at 100 pulls VWAP below the simple average of 101.
Key takeaways
- VWAP is the session's average traded price, weighted by volume; it resets each session.
- Institutions benchmark against it, so it often acts as support or resistance.
- Price above VWAP favours buyers; below favours sellers; standard deviation bands show stretch.
- Anchored VWAP starts from an event you choose and tracks the average price since then.