Volume Weighted Average Price (VWAP) is a trading indicator that tells you the average price a stock has traded at during the day, based on both volume and price. It helps traders understand if a stock is being bought at a good value or at a higher premium. VWAP is used mainly by intraday traders to plan their entry and exit points in the market.

What Does VWAP Mean in Stock Market?

VWAP stands for Volume Weighted Average Price. It is the average price a stock has traded at throughout the day, weighted by volume. It tells traders if the stock is trading above or below its average price for the day. This helps them understand whether to buy or sell based on the strength or weakness in the market.

How is VWAP Calculated?

VWAP is calculated by multiplying the price of each trade by the number of shares traded (volume), adding these values together, and dividing by the total volume for the day. The formula is:

VWAP = Total (Price × Volume) / Total Volume

This calculation continues throughout the day as new trades occur, making VWAP a dynamic and real-time indicator.

Why Do Traders Use VWAP?

Traders use VWAP to make informed decisions during the trading day. If a stock is trading above VWAP, it may show buying strength, and if it is trading below, it might indicate selling pressure. VWAP also acts like a guide for large institutions to avoid disturbing the market while buying or selling in large volumes.

Is VWAP Good for Intraday Trading?

Yes, VWAP is very useful for intraday traders. It helps identify if the price is fair compared to the day’s average. Traders often buy when the stock is below VWAP and sell when it is above. It also acts as a support or resistance level during intraday movements.

What Are the Benefits and Limitations of VWAP?

Benefits:

• Shows true average price including volume
• Helps with fair buy/sell decision-making
• Useful for intraday trading strategy

Limitations:

• Only works for intraday, resets daily
• Does not predict future trends
• Not very helpful for long-term investors

Can VWAP Be Combined with Other Tools?

Yes, VWAP can be used with other technical indicators like RSI, MACD, Bollinger Bands, and moving averages to make better trade decisions. Using VWAP with these tools provides extra confirmation and helps reduce false signals.