VWAP: volume-weighted average price
Explain what VWAP is, why it resets daily, and how institutions use it as an intraday bias line.
Lesson path
Technical Analysis + Price Action
Moving Averages
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Explain what VWAP is, why it resets daily, and how institutions use it as an intraday bias line.
The MA that knows about volume
Standard moving averages — SMA and EMA — only look at price. VWAP looks at price AND volume. The acronym is volume-weighted average price. The idea is simple: a candle that traded a million shares should count more than a candle that traded ten thousand. VWAP weights each candle by how much actually traded.
The math, in plain terms: take each candle's typical price (close is fine for our purposes), multiply by that candle's volume, and accumulate. Then divide by the running total of volume. The result is the volume-weighted average price for the session so far. Heavy-volume candles pull VWAP toward themselves. Light-volume candles barely move it.
VWAP is mostly an intraday tool, and it resets at the start of every new session. That's important. On a daily chart, VWAP isn't really useful — it would have to span weeks or months of volume. On a 1-minute, 5-minute, or 15-minute chart, VWAP shows you the average price the market has actually paid today, weighted by participation.
Why institutions care: VWAP is the benchmark for execution quality. A buy-side desk filling a large order tries to fill at or below VWAP. A sell-side desk tries to fill at or above. Because so many algorithms aim at the line, it acts as a magnet — price often returns to VWAP intraday, then accepts or rejects it. Holding above VWAP is bullish for the session; holding below is bearish.
Recap: VWAP weights candles by volume. Resets every session. Mostly used intraday by institutions as a fill benchmark — and as a result, it behaves like a magnet. Price above VWAP = bullish session bias. Below = bearish.
Knowledge check
Answer before moving on.
1. What does VWAP weight each candle by, in addition to price?
2. On what timeframe is VWAP most useful?
3. Why does price often gravitate back to VWAP intraday?
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