VWAP — Volume Weighted Average Price
The average price weighted by volume, reset at the start of each session. Used by institutions as a benchmark for execution quality and by traders as an intraday support/resistance level.
What is VWAP?
VWAP (Volume Weighted Average Price) is the average price of a stock over the trading day, weighted by the volume traded at each price level. It is the benchmark used by institutional traders to evaluate their execution quality — buying below VWAP is considered a good buy, above is a bad buy.
Unlike most indicators, VWAP resets each trading day at the market open. It captures the true average price that has been transacted throughout the day.
Formula
Typical Price (TP) = (High + Low + Close) / 3
VWAP = Σ(TP × Volume) / Σ(Volume)Calculated cumulatively from the session open.
Variants
| Variant | Description |
|---|---|
| VWAP | Daily reset — standard intraday |
| Anchored VWAP | Reset from a custom date (earnings, IPO, key pivot) |
| Weekly VWAP | Reset weekly — useful for swing traders |
| VWAP Bands | ±1σ and ±2σ standard deviation channels around VWAP |
Signal Interpretation
- Price above VWAP → Buyers in control; bullish intraday bias
- Price below VWAP → Sellers in control; bearish intraday bias
- Price bounces off VWAP → Strong support/resistance zone
- VWAP reclaim → Price drops below VWAP then reclaims it = bullish reversal signal
- VWAP rejection → Price approaches VWAP from below but fails to reclaim = continued bearish pressure
Trading Strategies
- VWAP pullback: In a morning breakout, wait for price to pull back to VWAP and bounce for a high-probability long.
- VWAP cross: When price crosses above VWAP with strong volume = momentum trade setup.
- Fading extremes: At ±2σ VWAP bands, fade back toward VWAP in low-volatility days.
- Anchored VWAP: Anchor to a key event date — earnings release, 52-week high/low, major gap. Acts as a powerful S/R level.
Why Institutions Use VWAP
Large funds cannot place orders all at once without moving the market. They execute in pieces throughout the day targeting VWAP to minimize market impact. This makes VWAP a self-fulfilling level — everyone is watching it.
Tips & Best Practices
- VWAP is only meaningful on intraday charts (1m to 1h). It has no statistical meaning on daily/weekly charts since it resets.
- Use with volume — a VWAP reclaim on high volume is far more significant than one on thin volume.
- Best used in liquid, high-volume stocks and indices (NIFTY, BANKNIFTY, large-cap F&O names).