Volume-weighted average price is where large orders are benchmarked. How to use it as context, support and a mean.
Key takeaways
- VWAP is the session's volume-weighted average, resetting each day.
- Price above VWAP with rising volume suggests buyer control.
- Use VWAP as context and a reference for reversion, not as a standalone signal.
VWAP is the average price of the session weighted by volume. It matters because institutional execution is frequently benchmarked against it, which means large participants care where price sits relative to it.
The simplest use is bias. Price holding above a rising VWAP suggests buyers are in control; repeated failures beneath it suggest the opposite. Many intraday traders take long setups only above VWAP and short setups only below.
The second use is reversion. In range-bound sessions, extended moves away from VWAP often return to it, which gives a rule-based target for fade trades — with the caveat that on trending days the same trade is a repeated loss.
Combine it with a regime filter and it becomes genuinely useful: trade VWAP reversion when the day's range is contracting, trade VWAP-supported continuation when it is expanding.
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