Volume Weighted Average Price — the average price a security has traded at throughout the day, weighted by volume, serving as a key intraday benchmark for institutional traders.
VWAP is calculated by summing the dollar value of all trades (price × volume) and dividing by total volume for the session. It resets at the open each trading day. The result is the true average price paid for the stock throughout the day, accounting for the fact that trades at different times have different volumes and therefore different weights in the average.
VWAP is the primary intraday benchmark used by institutional traders, algorithmic systems, and market makers. Large institutions executing significant orders aim to buy below VWAP (getting better than average execution) and sell above it. Many algorithmic execution strategies — including TWAP (time-weighted average price) and participation-based algos — measure their performance against VWAP. This widespread institutional use of VWAP as a reference point makes it a self-fulfilling level of interest for price action.
Retail and short-term traders use VWAP as a dynamic support/resistance level throughout the day. In an uptrending day, price tends to remain above VWAP; pullbacks to VWAP are often buying opportunities. In a weak day, price stays below VWAP; rallies to VWAP are often selling opportunities. The longer an uptrending stock stays above VWAP, the more bullish the session is considered.
This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.