VWAP
Volume Weighted Average Price Basics
Learn the basics of VWAP (Volume Weighted Average Price), how it's calculated, and how it differs from a simple moving average.
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This lesson introduces VWAP (Volume Weighted Average Price), a widely used intraday volume-based tool, distinct in approach from the OBV covered in the previous lesson.
This is general educational content explaining a standard calculation.
What Is VWAP?
VWAP calculates the average price of an instrument over a specific period, weighted by the volume traded at each price level, rather than a simple average based on time alone. This means prices associated with higher trading volume have a proportionally greater influence on the VWAP value than prices associated with lower volume.
How VWAP Differs from a Simple Moving Average
Unlike the SMA covered in the Moving Averages unit, which weights each time period equally regardless of how much volume traded during it, VWAP specifically incorporates volume into its calculation, meaning periods with heavier trading activity have a greater influence on the resulting average.
VWAP Is Typically Used Intraday
VWAP is most commonly discussed as an intraday tool, typically calculated fresh each trading session (resetting at the start of each new day), rather than as a continuously running calculation across multiple days like a standard moving average.
How VWAP Is Commonly Discussed as Being Used
Price trading above VWAP is sometimes discussed as reflecting relative strength for that session, while price trading below VWAP is sometimes discussed as reflecting relative weakness, since VWAP represents the session's volume-weighted average price. VWAP is also commonly referenced by institutional traders as a benchmark for assessing whether a large order was executed at a favourable average price relative to the rest of the session.
🔖 Summary
VWAP calculates a volume-weighted average price over a period, giving proportionally greater influence to prices associated with higher trading volume, distinguishing it from the equally-weighted SMA covered in the Moving Averages unit. Typically used as an intraday tool resetting each session, VWAP is commonly referenced both for assessing relative strength or weakness and as an institutional benchmark for order execution quality.
Frequently Asked Questions
What is VWAP?
The average price of an instrument over a specific period, weighted by volume, so that prices with higher trading volume have a proportionally greater influence.
How does VWAP differ from a simple moving average?
VWAP incorporates volume directly into its calculation, while an SMA weights each period equally regardless of volume traded.
Is VWAP typically used across multiple days or within a single day?
It's most commonly discussed as an intraday tool, typically resetting at the start of each new trading session.
How is VWAP commonly used as a benchmark?
Institutional traders commonly reference it to assess whether a large order was executed at a favourable average price relative to the rest of the session.
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