VWAP (Volume Weighted Average Price) tells you the average price traders paid, weighted by volume, for the entire day.
It answers one question: “Where is the real fair price?”
Because it factors in volume, it’s more accurate than a simple moving average.
How to Think About It
- Above VWAP: buyers are in control
- Below VWAP: sellers are in control
Institutional traders (hedge funds, market makers, algos) often use VWAP to guide buys and sells.
Why It’s Important
VWAP is used for:
1. Trend direction
- Price above VWAP = bullish
- Price below VWAP = bearish
2. Support and resistance
VWAP acts as:
- A magnet
- A bounce level
- A rejection level
3. Institutional behavior
Big players try to buy at or below VWAP to avoid moving the market too much.
How Day Traders Use VWAP
A. Buy setups
Buy when:
- Price dips to VWAP
- Holds it
- Then turns upward
B. Short setups
Short when:
- Price rallies up to VWAP
- Rejects
- Then turns downward
C. Avoiding bad entries
If you buy far above VWAP, you’re often buying an overextended move.
If you short far below VWAP, you’re chasing.
Simple Summary
VWAP shows the true average price today, weighted by volume.
Above = bullish, below = bearish.
Great for support, resistance, and trend confirmation.