VWAP (Volume Weighted Average Price) is the average price of an asset weighted by trading volume throughout the session. Unlike a simple moving average, VWAP reflects the actual average price traders paid, giving more weight to periods with higher volume. Institutions use VWAP as a benchmark; day traders use it as dynamic support and resistance.
- Average price weighted by volume throughout the day
- Resets at market open each session
- Price above VWAP = bullish; below = bearish intraday
How VWAP Works
VWAP calculates the true average transaction price:
VWAP Calculation:
Period 1: Price ₹100, Volume 10,000
Period 2: Price ₹102, Volume 20,000
Period 3: Price ₹101, Volume 15,000
Cumulative Price × Volume:
(100×10,000) + (102×20,000) + (101×15,000)
= 1,000,000 + 2,040,000 + 1,515,000
= 4,555,000
Cumulative Volume: 45,000
VWAP = 4,555,000 / 45,000 = ₹101.22
Simple Average: (100+102+101)/3 = ₹101
VWAP: ₹101.22 (higher because more volume at ₹102)
Quick Reference: VWAP Trading
| Price vs VWAP | Interpretation | Action |
|---|---|---|
| Price > VWAP | Buyers control | Bullish bias |
| Price < VWAP | Sellers control | Bearish bias |
| Price at VWAP | Equilibrium | Watch for direction |
| Far above VWAP | Overextended | Consider profit-taking |
| Far below VWAP | Undervalued | Watch for bounce |
Example: VWAP Day Trade
VWAP Support Trade:
| Time | Price | VWAP | Action |
|---|---|---|---|
| 9:30 | ₹505 | ₹503 | Above VWAP |
| 10:00 | ₹510 | ₹505 | Trending up |
| 11:00 | ₹506 | ₹507 | Pullback to VWAP |
| 11:15 | ₹508 | ₹507 | Bounce! BUY |
| 12:00 | ₹515 | ₹509 | Target hit |
Trade: Bought on VWAP support test with stop below.
VWAP is the volume-weighted average price throughout the trading day. It resets each session. Day traders buy below VWAP and sell above it. Institutions use VWAP to benchmark their execution quality.
VWAP Trading Strategies
VWAP Support/Resistance
In uptrends, buy pullbacks to VWAP. In downtrends, sell rallies to VWAP.
VWAP Cross
When price crosses above VWAP early in day, bullish bias. Below = bearish.
VWAP Bands
Some platforms show standard deviation bands around VWAP for overbought/oversold.
Trend Confirmation
Strong stocks stay above VWAP all day. Weak stocks stay below.
VWAP for Different Traders
Day Traders
Use VWAP as dynamic support/resistance. Entry and exit reference.
Swing Traders
Less relevant—VWAP resets daily. Use for intraday entries only.
Institutions
Benchmark execution quality. Algorithms aim to beat VWAP.
Scalpers
VWAP deviations offer mean reversion opportunities.
VWAP Limitations
- Intraday only – Resets each day, not useful for swing trading.
- Lagging – Based on past prices, though volume-weighted.
- Less useful at open – VWAP needs data to build; unstable early.
- Varies by stock – Some stocks respect VWAP more than others.
Common Mistakes
-
Using VWAP for swing trades – It’s a day trading tool only.
-
Ignoring context – VWAP in strong trend acts differently than in range.
-
Precise entries at VWAP – It’s a zone, not exact price.
-
Using alone – Combine with price action and volume.
How JournalPlus Tracks VWAP
JournalPlus logs your entry price relative to VWAP, helping you analyze whether buying below VWAP improves your day trading results.
