Lesson 1 of 1 · 2 min
VWAP
The volume-weighted average price — what it measures, how it's calculated, and how to use it without over-trusting it.
VWAP is the average price of everything traded over a window, weighted by how much traded at each price. It's one of the few tools on your chart that large institutions use for the same purpose you might: as a benchmark for fair execution.
Definition
Volume-weighted average price is the sum of each trade's price times its volume, divided by total volume:
It resets at the start of each window — usually the session — and is often shown with deviation bands above and below.
Why it matters
- Execution benchmark — many institutional orders are measured against VWAP; algorithms try to buy below it or sell above it over a day.
- Developing fair price — VWAP is the volume-weighted mean. Volume profile's POC is the busiest single price — the mode. They describe the same session from different angles.
- Context — price holding above a rising VWAP describes a different day from price chopping across a flat one.
Key Insight
VWAP and the POC can disagree. A selloff late in the session pulls VWAP down while the POC stays where most business was done. The gap between them is a reason to look at the distribution, not a signal by itself.
Anchored VWAP
An anchored VWAP starts its calculation from a chosen point — a swing high, a news event, the start of a move — rather than the session open. It shows the average price paid by everyone who traded since that moment.
Limits
- Platforms calculate VWAP differently (per-trade vs. per-bar typical price; with or without overnight).
- Deviation bands assume a spread of prices that real sessions often don't have.
- Price isn't obliged to return to VWAP.
Trading implication
Pick one VWAP definition and keep it. Use it as context — where the average participant is positioned today — not as a line that price must respect.
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