What Is VWAP?
VWAP is the volume weighted average price: the running total of price times volume divided by the running total of volume, restarted at the beginning of each session. It answers what the average traded price of the session has been, weighted so that busy bars count more than quiet ones.
Every other line on this site is computed from price. This one has volume in it, and that single difference is what it is for.
How it works
Take each bar’s typical price — high plus low plus close, divided by three. Multiply by that bar’s volume. Add it up. Divide by the total volume.
VWAP = Σ(typical price × volume) / Σ(volume)
That is the whole formula, and it is a running total rather than a window: every bar since the session open is still in it.
What the weighting does
A bar with ten times the volume moves the line ten times as much. The quiet bars barely register.
The test for whether that matters: set every bar’s volume to the same number and VWAP becomes an ordinary running average of price. Verified on this data — the weighting is not a garnish on the formula, it is the formula.
Against a moving average
Two lines, two different questions.
A moving average asks what price has been doing lately — a fixed window, sliding forward, every bar counted equally.
VWAP asks what the average participant paid this session — every bar since the open, weighted by how much traded.
Neither is the smoothed version of the other, which is why they separate on the chart above.
The reset
This is the part that gets skipped and it changes everything. VWAP restarts at the session open.
On this chart the reset version finishes at 100.48 and the continuous one at 100.33 — the same bars, the same volume, a different answer, because one of them is still carrying yesterday.
A VWAP that has been running for a week is not VWAP. It is a very slow average, and it is worth checking what your platform is actually doing, because the default is not the same everywhere.
That makes it a session tool in the same way pivot points are.
What it is actually for
Above or below. That is the reading, and it is worth more than it sounds.
The reason is who uses it. A fund with a large order to fill is measured against VWAP — filling below it on a buy is a good execution and above it is a bad one. So VWAP is a benchmark that real money is judged by, which is a more concrete reason for a line to matter than most lines on a chart have.
On this session price traded below the line for 9 bars before finishing above it at 100.52. That is a session that started weak and ended strong, read off one line.
The bands
Most platforms will draw standard deviation bands around it, the same construction as Bollinger Bands but anchored to VWAP.
Treat the width as information and the edges as approximate. On this chart one deviation contained 10 of the session’s 20 closes — 50%, not the roughly two thirds a textbook normal distribution would give you. Price is not normally distributed and the bands inherit that.
A worked example
At the open there is no VWAP, because there is no session yet. The first few bars are noise.
Once it settles, ask the one question. Price above the line, so the session’s buyers are in front.
The line becomes the reference, not the trade. A pullback toward it is a place where being wrong is cheap; it is not by itself a reason to be long.
The invalidation is a close below it that holds. Not a wick through — the same rule as every level on this site.
And it expires at the close. Whatever this line said today, it does not carry to tomorrow.
The original data
Across our study of 24,971 trading videos, 477 cover VWAP. The median one gets 4,017 views, 81% never pass 50,000, and the median length is 9.9 minutes.
That is one of the lowest medians in this glossary, below chart patterns at 2,513 only narrowly and far below pivot points at 14,381 — on 477 videos, a crowded field.
The corpus carries description text for 70 of those 477, and across those 70, two mention invalidation, failure, or what a bad read looks like.
When it fails
In a range it is crossed constantly
Measured on the sideways stretch above: 8 crossings in 36 bars. Anyone treating a cross as a signal took eight trades and went nowhere.
The line is a mean, and price in a trading range oscillates around its mean by definition. That is not a malfunction; it is what a mean does.
It is a lagging description
Every value in it is made of bars that have already happened, and unlike a moving average it never drops the old ones. Late in a session the line is heavy and slow, because the whole day is in it.
The reset is not what you think
Covered above and worth repeating: check what your platform resets on. Daily, weekly, and “anchored to a date you picked” are all sold under the same three letters.
You read it after the session finished
A finished session makes the line look decisive. Cut the right-hand side and price below VWAP is either a dip in a strong day or the start of a weak one, with nothing on screen to separate them.
Related
Volume is the ingredient that makes this different from an average, and what it does and does not tell you.
Moving average is the line VWAP is most often confused with, and the comparison above is the fastest way to keep them apart.
And pivot points is the other session-bound tool here — same expiry, entirely different arithmetic.
The way I use it is as a single question at the open, which is whether we are above it or below it, and then I mostly leave it alone. What I do not do is treat a touch of it as a trade, because in a quiet session price crosses it constantly and you will find yourself taking eight of them. It is a description of where the session has been trading, and a description is worth having without being a signal.
— Michael Whitman, from this video
This page is educational, not financial advice. Test every idea on your own charts before risking money.