VWAP stands for Volume Weighted Average Price. It is a technical indicator that shows the average price a stock has traded at throughout the day, based on both volume and price. Traders use VWAP to identify whether the stock is currently trading at a fair value, and to decide when to enter or exit trades. If the price is above VWAP, it may signal strength. If it is below, it may show weakness.

What is VWAP in simple words?

VWAP means the average price a stock has traded at during the day, considering both the price and the number of shares traded at each price. It helps traders understand the true average price and shows whether buyers or sellers are stronger at any point in the trading day.

How is VWAP calculated?

VWAP is calculated by adding the total value traded (price × volume) for every transaction during the day, and then dividing it by the total number of shares traded. The formula is:

VWAP = (Cumulative Price × Volume) / Cumulative Volume

It updates every time a trade happens, which makes it useful throughout the trading session.

Why do traders use VWAP?

Traders use VWAP to make smarter buy and sell decisions. If the stock price is above VWAP, it means buyers are in control, and it may be a good time to sell. If the price is below VWAP, sellers are stronger, and it could be a good time to buy. VWAP helps in understanding market trend and trade direction, especially for intraday trading.

How does VWAP help in intraday trading?

VWAP is a favorite tool for intraday traders. It shows them whether they are buying at a good price or not. If they buy below VWAP, it means they are getting a better deal than the average trader. Similarly, selling above VWAP gives them an edge. Many traders use VWAP as a dynamic support and resistance line during the day.

Can VWAP be used with other indicators?

Yes, VWAP works well with other indicators like RSI, MACD, and Moving Averages. Combining VWAP with these tools can give stronger trading signals. For example, if RSI is showing overbought and price is also above VWAP, it could be a strong sell signal. It helps in confirming your trade decisions.

What are the pros and cons of using VWAP?

Pros:

• Gives real-time average price with volume
• Helpful for intraday trading decisions
• Shows support and resistance zones clearly

Cons:

• Works best only for intraday, resets daily
• Lagging indicator, not good for predicting future
• Not ideal for long-term investment analysis