Volume Weighted Average Price (VWAP)¶
| Name | Type | Prerequisite | Use Cases |
|---|---|---|---|
| Volume Weighted Average Price (VWAP) | Volume/Benchmark | Price & Volume | Determining institutional fair value for the day. |
Definition¶
The Volume Weighted Average Price (VWAP) is a trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price. It provides insight into both the trend and the value of a security.
Mathematical Equation¶
\[
VWAP = \frac{\sum (\text{Price} \times \text{Volume})}{\sum \text{Volume}}
\]
Typically calculated cumulatively from the open of the trading session.
Special cases¶
- Maximum possible value: Unbounded
- Minimum possible value: 0
- Behavior: Follows the price, anchored to the start of a period, weighted by volume.
Visualization¶
Trading Significance¶
-
Institutional Benchmark: Institutions often use VWAP to gauge the quality of their executions.
-
Trend Confirmation: Price above VWAP is bullish; below is bearish.
-
Support/Resistance: Often acts as strong intraday support or resistance.