Volume Weighted Average Price (VWAP)

The average price of an asset over a defined period, weighted by how much volume traded at each price.

What it is

VWAP (Volume Weighted Average Price) is a benchmark line that shows the average price an asset has traded at across a defined period, with each price weighted by the volume that changed hands there. Unlike a simple moving average, VWAP gives more influence to prices where more trading occurred, so it reflects where the bulk of activity actually took place. It is most commonly calculated on an intraday basis and resets at the start of each session, which is why the standard version is called "session VWAP." A related variant, "Anchored VWAP," begins its accumulation from a user-chosen point (such as a swing high, gap, or news event) rather than the session open. VWAP is widely used as a reference point rather than a forecasting tool. No indicator is predictive, and all trading carries risk of loss.

How it works

For each bar, VWAP uses a "typical price" (commonly the average of high, low, and close) and multiplies it by that bar's volume. It keeps a running total of these price-times-volume values and a separate running total of volume, both accumulated from the start of the chosen period. VWAP at any point is the first total divided by the second: cumulative (typical price x volume) / cumulative volume. Because the sums grow over the period and reset when the period ends (for example, at each new trading day), the line tends to settle and move more slowly as the session progresses and more data accumulates. The "anchor" is simply the starting point of that accumulation.

How traders read it

• Traders often read price trading above VWAP as the average buyer being in profit for the session, and price below VWAP as the average buyer being underwater for the session.
• The slope and position of VWAP are sometimes used as a rough sense of intraday bias, with a rising line read as upward pressure and a falling line as downward pressure. This is interpretation, not prediction.
• Some traders treat VWAP as a potential reference area where price has reverted before, watching how price behaves on a return to the line rather than assuming any particular outcome.
• Institutional desks commonly use VWAP as an execution benchmark, comparing their fill prices to VWAP to judge whether they bought or sold better or worse than the session average.
• VWAP bands (standard deviations around the line) are sometimes added, and traders may describe price stretching to an outer band as a stretched condition relative to the session, never as a signal to act.

Common settings

Most charting tools offer a session-anchored VWAP (resets daily) by default, using the typical price hlc3 as the source. Common variations include changing the anchor period (weekly, monthly, or a manually placed "Anchored VWAP" from a specific bar such as a swing high/low or an earnings date) and adding standard-deviation bands (often 1, 2, and 3 multiples) to frame a range around the line. Pine Script also provides the built-in ta.vwap for the standard session calculation.

Strengths

• Incorporates volume, so it reflects where trading actually concentrated rather than treating every price equally like a simple moving average.
• Widely used as a neutral, objective execution benchmark by institutions, which makes it a commonly watched reference level.
• Simple to interpret as a single 'fair average' line for the session, useful as a quick read of intraday context.
• Anchored variants let traders measure the average price since a meaningful event, such as a high, low, gap, or news release.

Pitfalls to watch

• VWAP is a backward-looking average of what already traded, not a forecast. It describes the session so far and cannot predict future price.
• It depends on reliable volume data. On instruments with poor or fragmented volume (such as some spot forex feeds where volume is only tick-based), VWAP can be misleading or inconsistent between data providers.
• The standard session VWAP resets each day, so its value near the open is built from very little data and can be jumpy or unstable until volume accumulates.
• Because it is cumulative, VWAP becomes 'sticky' later in the session and reacts slowly to new moves, so it can lag sharp reversals.
• Anchored VWAP results change entirely depending on where you place the anchor, so two traders using different anchor points will see different lines and may draw different conclusions.

Pine v6 example

//@version=6
indicator("Session VWAP", overlay = true)

// Reset accumulation at the start of each new day
newSession = ta.change(time("D")) != 0

var float cumPV  = na
var float cumVol = na

src = hlc3  // typical price: (high + low + close) / 3

if newSession or na(cumPV)
    cumPV  := src * volume
    cumVol := volume
else
    cumPV  += src * volume
    cumVol += volume

vwapValue = cumVol != 0 ? cumPV / cumVol : na
plot(vwapValue, "VWAP", color = color.blue, linewidth = 2)

Pro tip: Check your data source before relying on VWAP, especially in forex. Because spot FX has no centralized volume, many feeds substitute tick volume, and VWAP values can differ noticeably between brokers and platforms. Confirm what 'volume' your chart is actually using so you know what the line represents.

Educational only — not financial advice, not a recommendation to trade. No indicator is predictive; trading involves substantial risk of loss.