What is VWAP?

VWAP (Volume Weighted Average Price) is an intraday indicator that shows the average price a security has traded at, weighted by volume. It resets daily and is widely used by professional traders to assess price fairness during the trading session. Formula: ini CopyEdit VWAP = Cumulative (Price × Volume) / Cumulative Volume Why Use VWAP? • Helps identify institutional buying/selling zones • Acts as a dynamic support/resistance line • Ideal for intraday trading, scalping, and mean-reversion setups Trading VWAP: Strategy Types 1. VWAP as a Trend Filter • Above VWAP: Bullish bias → consider long trades • Below VWAP: Bearish bias → consider short trades Application: Align trades only in the direction of VWAP trend. 2. VWAP Pullback Entry Strategy • When price trends away from VWAP and pulls back toward it, enter in the trend direction after confirmation. Buy Example: Price breaks above VWAP, pulls back, then forms a bullish candle near VWAP → enter long. Sell Example: Price below VWAP, pulls back up, forms a bearish candle → enter short. 3. VWAP Reversion Strategy • When price is significantly extended from VWAP and shows signs of exhaustion, expect a mean-reversion back toward VWAP. Caution: Only use when market is range-bound or has hit extreme intraday levels. Entry & Exit • Entry: On confirmation near VWAP with volume spike or price action. • Exit: Near intraday support/resistance or fixed risk-reward ratio (e.g., 1:2). • Stop-loss: Slightly above/below recent swing or VWAP (depending on direction). Timeframes • Works best on 1-min to 15-min charts for intraday. • Should not be used on daily/weekly charts (VWAP resets daily). Conclusion VWAP is a powerful intraday tool that combines price and volume, providing a reliable guide for trade entries, exits, and trend bias. When paired with price action or volume analysis, it becomes a potent strategy for both directional and reversion trades.