Volume Weighted Average Price (VWAP)
Developed by Institutional traders, formalised in the 1980s
Quick Answer
The Volume Weighted Average Price (VWAP) is an intraday benchmark that calculates the average price of an instrument, weighted by volume, over a session. It was originally developed as an execution benchmark for institutional orders — a portfolio manager buying thousands of shares needed a way to measure whether the trading desk executed the order "well" relative to the market, and VWAP became the standard.
What is the Volume Weighted Average Price?
The Volume Weighted Average Price (VWAP) is an intraday benchmark that calculates the average price of an instrument, weighted by volume, over a session. It was originally developed as an execution benchmark for institutional orders — a portfolio manager buying thousands of shares needed a way to measure whether the trading desk executed the order "well" relative to the market, and VWAP became the standard. Today, VWAP is one of the most watched intraday indicators because it shows where the "average" participant in a session is transacting. Price trading above VWAP means buyers are paying a premium; price below VWAP means sellers are accepting a discount. Institutional algos frequently use VWAP as a reference for entries, making it a self-fulfilling level throughout the session.
How It Works
VWAP is calculated by summing the product of price and volume for each bar in the session and dividing by the total cumulative volume. On most platforms, the VWAP resets at the start of each trading session — usually the UTC day for forex futures or the cash open for equities. The resulting line moves with price but is weighted by how much volume traded at each price, giving a more accurate picture of the "fair" session average than a simple moving average. Traders use VWAP as intraday support/resistance, as a trend filter (bullish above, bearish below), and as a mean reversion target — price that extends far from VWAP tends to return toward it.
Formula
VWAP = Σ(Typical Price × Volume) / Σ(Volume)
Typical Price = (High + Low + Close) / 3
Calculated cumulatively from session start.How to Read the VWAP
- 1Price above VWAP: session bias bullish, buyers paying premium
- 2Price below VWAP: session bias bearish, sellers accepting discount
- 3Price pulling back to VWAP: dynamic support/resistance test
- 4VWAP flat: range-bound session
- 5VWAP rising: intraday uptrend
- 6VWAP falling: intraday downtrend
- 7Strong moves away from VWAP often mean reversion back to the line
Strengths and Weaknesses
Strengths
- +Volume-weighted average reflects real market participation
- +Key institutional reference — levels matter
- +Objective intraday trend filter
- +Works across all liquid instruments with volume data
- +Foundation of many algorithmic execution strategies
Weaknesses
- −Forex lacks centralised volume — tick volume is an imperfect proxy
- −Resets at session start so has no multi-day memory
- −Not useful on low-volume instruments
- −Can be lagging after large directional moves
- −Less reliable on weekends and thin sessions
Best Timeframes
Intraday only — 1m to 4H. VWAP resets each session so it is not applicable to daily or higher timeframes in the classical sense.
Best for: Intraday day trading on futures, indices, large-cap equities, and major forex pairs. Institutional traders and scalpers rely on VWAP as a primary session benchmark.
Example Strategy
VWAP Pullback Scalp: On an intraday uptrend where price has been above VWAP for the session, wait for a pullback to the VWAP line. Enter long on a reversal candle at VWAP with a stop below the pullback low. First target is the session high, second target is 2× the stop distance. Exit all positions if price closes below VWAP — that is a sign the session bias has flipped. Works best during the London session on EUR/USD and GBP/USD, where institutional flow creates genuine VWAP reactions.
This example is educational, not financial advice. Always backtest any strategy and manage risk with appropriate position sizing.
Related Indicators
Brokers That Offer the VWAP
Any broker with MetaTrader 4, MetaTrader 5, or cTrader supports the VWAP as a standard indicator. Below are our top EU-regulated picks.
Frequently Asked Questions
What is the Volume Weighted Average Price (VWAP)?
The Volume Weighted Average Price (VWAP) is an intraday benchmark that calculates the average price of an instrument, weighted by volume, over a session. It was originally developed as an execution benchmark for institutional orders — a portfolio manager buying thousands of shares needed a way to measure whether the trading desk executed the order "well" relative to the market, and VWAP became the standard. Today, VWAP is one of the most watched intraday indicators because it shows where the "average" participant in a session is transacting. Price trading above VWAP means buyers are paying a premium; price below VWAP means sellers are accepting a discount. Institutional algos frequently use VWAP as a reference for entries, making it a self-fulfilling level throughout the session.
Who developed the VWAP?
VWAP was developed by Institutional traders, formalised in the 1980s.
What is the formula for the VWAP?
VWAP = Σ(Typical Price × Volume) / Σ(Volume) Typical Price = (High + Low + Close) / 3 Calculated cumulatively from session start.
What timeframes work best with VWAP?
Intraday only — 1m to 4H. VWAP resets each session so it is not applicable to daily or higher timeframes in the classical sense.
What is VWAP best used for?
Intraday day trading on futures, indices, large-cap equities, and major forex pairs. Institutional traders and scalpers rely on VWAP as a primary session benchmark.