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Guide 01 / Volume weighted average price

VWAP explained

VWAP is the average price of a session weighted by how much traded at each price. Here is the formula, the variations, and the limits.

VWAP+1 SD-1 SDSession open: VWAP starts here
Session VWAP with one standard deviation bands, rebuilt from the open. Illustrative chart generated from sample data, not real market data.

What VWAP is

VWAP stands for volume weighted average price. Where a simple average treats every bar the same, VWAP gives more weight to the prices where more volume changed hands. The result is a single line on an intraday chart that sits near where most of the session's business has been done.

Many traders watch it because it is a common reference point: price above VWAP means the market is trading above its volume weighted average for the session, and price below means the opposite. It is also widely described as a benchmark for judging execution quality, since a buyer who paid less than VWAP did better than the session average.

How VWAP is calculated

For each bar you take a representative price, multiply it by the bar's volume, and keep running totals. The most common representative price is the typical price, the average of high, low and close.

Typical price = (High + Low + Close) / 3 VWAP = cumulative(Typical price x Volume) / cumulative(Volume)

Because both totals are cumulative, the line starts at the first bar of the period and becomes steadier as volume piles up. Early in the session a single heavy bar can pull it around, which is why many traders treat the first few minutes with caution.

Why it resets

VWAP is normally an intraday tool. The totals restart at the beginning of each trading session, so every day gets a fresh line. On futures, the definition of the session start (for example the exchange open versus the start of the overnight session) changes the result, so check which one your chart uses.

Anchored VWAP

Anchored VWAP drops the idea of a fixed daily reset. You pick a starting bar yourself, such as a swing high or low, a gap, or a news bar, and the line is calculated from that point forward. It answers a different question: what is the volume weighted average price paid by everyone who traded since that event? Some traders anchor several lines at once and watch how price reacts when it returns to them. Because you choose the anchor, two traders can draw different lines on the same chart, and the choice is a judgement, not a rule.

Standard deviation bands

Many VWAP indicators add bands above and below the line. They are built from the volume weighted standard deviation of price around VWAP, and are usually plotted at one, two or three deviations. The bands widen as the session's range expands. Traders commonly use them as a measure of how stretched price is from the average, in the same spirit as other volatility envelopes. A band is a statistical distance, not a guarantee that price will turn there.

How day traders commonly use it

  • Bias filter. Some traders only look for longs while price holds above VWAP and shorts while it holds below.
  • Pullback reference. In a trending session, VWAP is often watched as an area where pullbacks pause or fail.
  • Mean reversion reference. Others watch the outer bands as stretched levels and VWAP as the average price may revert toward.
  • Execution benchmark. Larger participants compare their fills with VWAP.

Limitations to keep in mind

  • It is a lagging, cumulative average. Late in the day it moves slowly and says little about the last few minutes.
  • It depends on volume data, so it is only as good as the feed and the session definition behind it.
  • On days with a strong one-way trend, price can stay on one side of VWAP all session; touching it does not make it support or resistance.
  • It is intraday by design. Applying a session VWAP to daily bars does not mean much.
Using it in NinjaTrader Desktop

Session VWAP indicators for NinjaTrader 8 are available from several developers, and setup details such as session templates and anchoring differ between them. NinjaTrader Guru has free guides for adding indicators to a chart and managing session templates in NinjaTrader Desktop.

If you would rather have a ready-made VWAP and related tools inside NinjaTrader 8, Browse the NinjaTrader software listing at Affordable Indicators, or ask questions in the Discord community.

Quick answers

What does VWAP stand for?
Volume weighted average price: the average price of a period with each price weighted by the volume traded there.
Does VWAP work on daily charts?
The standard session VWAP is designed for intraday charts and resets each session. Anchored VWAP can be started from any bar, including on higher timeframes.
What is the difference between VWAP and a moving average?
A moving average uses a fixed window of recent bars and ignores volume. VWAP is cumulative from the session start and weights each price by its volume.

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Educational only, not financial advice. Futures trading involves substantial risk of loss.