What is VWAP (Volume-Weighted Average Price)?
The average price weighted by volume traded — institutional cost basis and intraday fair-value reference.
Definition
VWAP = Σ(price × volume) ÷ Σ(volume) over a defined window (typically intraday from session open). It is the volume-weighted average price at which the asset has traded; institutional desks use it as their target execution benchmark and a fair-value anchor.
Why it matters for trading
- VWAP is the "institutional fair value" for the day. Buying significantly under VWAP = buying cheaper than the average institutional fill; selling above = selling richer.
- Price relative to VWAP is one of the cleanest intraday momentum signals. Above and rising = participation behind the move. Below and rising = short-cover bounce that may fade. Below and falling = trend continuation.
- VWAP bands (±1σ, ±2σ from the running mean) define dynamic mean-reversion zones. Mean-reversion strategies fade ±2σ extensions; trend strategies enter on ±1σ pullbacks in the trend direction.