VWAP
Volume Weighted Average Price, or VWAP, is the average price at which a stock has traded throughout the day, weighted by volume. It is plotted as a single line on intraday charts and is one of the most-watched levels by institutional traders. For retail traders, VWAP is a powerful intraday support/resistance and trend filter.
Key takeaways:
- VWAP is the volume-weighted average of all intraday prices, calculated tick by tick.
- It resets every day at market open — it is purely an intraday indicator.
- Price above VWAP suggests intraday bullish bias; below VWAP suggests bearish bias.
- Institutions use VWAP to benchmark execution quality.
- VWAP works best on liquid stocks and indices where volume is meaningful.
How VWAP is calculated
For every trade, multiply the trade price by its volume. Sum these products through the day and divide by the cumulative volume traded so far. The result is the VWAP at that moment. Because the calculation considers both price and volume, large trades pull VWAP more than small ones.
Why institutions care about VWAP
Mutual funds, pension funds and hedge funds need to enter and exit large positions without distorting prices. They use VWAP as the benchmark — a buy below VWAP is considered good execution, a buy above VWAP is not. Retail traders piggyback on this by recognising that institutions defend VWAP as an intraday level.
Trading signals from VWAP
- VWAP as support: In an uptrend, a pullback to VWAP often offers a low-risk long entry.
- VWAP as resistance: In a downtrend, a bounce to VWAP can provide a short entry.
- VWAP crossover: Price crossing back above VWAP after a long stay below can signal trend change for the day.
- VWAP bands: Adding standard deviation bands (1σ, 2σ) helps identify intraday extremes.
VWAP in option trading
Options traders watch the VWAP of the underlying — not the option itself — to time entries. Buying calls when the underlying breaks back above VWAP with momentum, or buying puts when it breaks below, is a common intraday tactic. Index VWAPs (Nifty, Bank Nifty) are especially watched on weekly expiry days.
VWAP vs Anchored VWAP
Standard VWAP resets at the open. Anchored VWAP starts from any candle of your choosing — typically a major event like a result release, swing low or news bar. Traders use anchored VWAP for multi-day or multi-week reference levels. Many charting platforms support both.
Common mistakes
- Treating VWAP as a magic level — like any indicator, it works in context, not in isolation.
- Using VWAP on illiquid stocks where intraday volume profiles are erratic.
- Ignoring trend direction; VWAP signals are stronger in the direction of the daily trend.
- Forgetting that VWAP includes opening auction volumes that may distort early readings.
Frequently asked questions
Is VWAP plotted on daily charts?
No, it resets each day. For multi-day usage, traders use Anchored VWAP from a chosen reference point.
Does VWAP work on Nifty options?
Better on the underlying index. Option premium VWAP is less reliable due to time decay.
Can I trade pre-market with VWAP?
No — VWAP needs intraday volume data. It begins computing from the open of regular session.
Does Lemonn show VWAP?
Yes. VWAP is a standard overlay on Lemonn’s intraday charts.
