Definition
VWAP (Volume Weighted Average Price) is the average price a security has traded at throughout the session, weighted by volume — it's the most important intraday indicator for day traders, serving as a real-time measure of fair value and the primary dividing line between bullish and bearish intraday price action.
Example
“The stock opened strong, ran to $24.80, then pulled back and held VWAP at $23.60 perfectly on the test. I bought the VWAP reclaim candle — that's one of the cleanest long entries in momentum trading. Stock went to $25.40 from there.”
Detailed Explanation
VWAP is calculated by taking the sum of (price × volume) for every transaction during the day, then dividing by total volume — the result is the true average price weighted by where the actual money exchanged hands. This makes it fundamentally different from a simple moving average, which weights every price equally regardless of volume. Because VWAP reflects where institutional volume was transacted, institutional traders use it as a benchmark — buying programs try to fill at or below VWAP (to beat the daily average), and selling programs try to fill at or above VWAP (to beat the average). This institutional activity creates the self-fulfilling support and resistance dynamic at VWAP that day traders exploit.
VWAP resets every day at the market open, which makes it a pure intraday indicator. Stocks trading above VWAP are generally considered in bullish intraday territory; below VWAP is bearish. The most powerful setups occur around VWAP tests: a stock trending above VWAP that pulls back to test it from above, holds it, and resumes higher — that "VWAP reclaim" or "VWAP hold" is a high-probability long entry. Conversely, a stock that breaks below VWAP and then attempts to reclaim it but gets rejected — that "failed VWAP reclaim" is a short setup. The reaction at VWAP tells you whether institutional buyers are actively defending the level or distributing into any bounce.
Advanced applications use "anchored VWAP" — a VWAP calculation that starts from a specific significant event rather than the daily open. Anchoring VWAP to an earnings gap, a major news event, or the start of a trend gives you a longer-term picture of where the average participant in that move is positioned. A stock that has been above anchored VWAP from a major catalyst for six weeks and now pulls back to it is at a different kind of level than just any intraday VWAP — it represents the average cost basis of everyone who bought on and after the catalyst. These longer-term VWAP levels often become major support or resistance in multi-day and multi-week setups.