VWAP

VWAP (Volume Weighted Average Price) is the cumulative average price of all transactions during the session, with each trade weighted by its volume. It represents the true average price paid by all participants so far in the day.

VWAP = Σ (Price × Volume) ÷ Σ Volume

Why VWAP matters

Institutional benchmark: large institutions measure execution quality against VWAP. A buy order executed below VWAP was a good fill; above VWAP was a poor fill. This creates consistent institutional behavior around the VWAP level: buyers accumulate below it, sellers distribute above it.

Fair value proxy: VWAP represents the average cost basis of the day’s participants. Price above VWAP means longs are profitable on average; below means longs are underwater. This influences behavior: underwater longs may panic-sell; profitable longs may add.

Mean reversion tendency: because so many participants use VWAP as a reference, price tends to rotate around it throughout the day. Extended deviations above or below often revert.

VWAP as support and resistance

Price above VWAP: bullish bias. VWAP acts as dynamic support. Pullbacks to VWAP in an uptrend are potential long entries.

Price below VWAP: bearish bias. VWAP acts as dynamic resistance. Rallies to VWAP in a downtrend are potential short entries.

VWAP reclaim: price drops below VWAP then rallies back above with volume. Bullish structural shift. The reverse (losing VWAP) is bearish.

VWAP resets

Standard VWAP resets at the start of each session (9:30 AM ET for RTH VWAP). Some traders use 24-hour VWAP (including ETH). The RTH VWAP is the most widely used because institutional activity concentrates in RTH.

VWAP bands

Many traders display standard deviation bands around VWAP (±1σ, ±2σ). Price reaching the 2nd standard deviation band often signals an overextended move and potential mean reversion.