Volume Weighted Average Price (VWAP): How to Read It
VWAP is the average price of the session weighted by how much volume traded at each price. Intraday traders use it as a fair-value reference and a key support or resistance line.
The formula
Common settings: Resets each session; often shown with 1 and 2 standard deviation bands
How to read it
- Price above VWAP suggests buyers are in control for the session.
- Price below VWAP suggests sellers are in control.
- VWAP often acts as support or resistance during the day.
- Large traders sometimes benchmark execution against VWAP.
- VWAP resets at the start of each session.
Typical signals
- Pullback to VWAP in an intraday uptrend as a potential entry zone.
- Price reclaiming VWAP after trading below it as a bullish shift.
- Price losing VWAP after trading above it as a bearish shift.
Pitfalls to avoid
- Mostly useful for intraday trading, not long-term analysis.
- Becomes less responsive late in the session as volume accumulates.
- Requires reliable intraday volume data.
Strategies that use it
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Why does VWAP reset each day?
It measures the average price for the current session, so it starts fresh each trading day.
Can VWAP be used on daily charts?
Standard VWAP is intraday, though anchored VWAP can start from any chosen point.
Is VWAP a lagging indicator?
Yes. It is based on past trades within the session.
Works well with
Volume
Volume shows how many shares, contracts or coins traded during each period. It reveals the level of participation behind a price move and helps judge whether a move has conviction.
📉Exponential Moving Average
The Exponential Moving Average is a moving average that gives more weight to recent prices. It responds faster than the SMA, which helps traders spot trend changes sooner.
📏Average True Range
Average True Range measures how much an asset typically moves in a period, including gaps. It does not show direction, but it is extremely useful for sizing positions and placing stops.