Volume-Weighted Average Price (VWAP) is exactly what it sounds like: the average price of a stock, weighted by volume. It’s recalculated from the opening bell and resets daily. It gives you a better read on price action by accounting for where most volume actually traded—not just where prices moved.

If you’re watching a 5-minute chart and using VWAP, you’re tracking where the real money moved during each candle. That’s more useful than just price alone.

Formula (if you like math):

VWAP = ∑(Typical Price × Volume) / ∑Volume

Typical Price = (High + Low + Close) / 3

Don’t worry—you’re not calculating this by hand. Any decent charting platform already handles it. But understanding what’s under the hood helps you trade smarter.

Why Matters

VWAP acts like gravity for intraday prices. It shows where the bulk of trading happened—what institutions might consider “fair value” for the day.

How Traders Use It

• Long bias: If price is above VWAP, bulls are probably in control. Some traders treat that as confirmation to stay long.
• Short bias: If price is below VWAP, bears may be winning. Shorts might lean in.
• Mean reversion: VWAP can act like a magnet. Some scalpers fade moves too far from it, expecting a snap back.

How Institutions Use It

Mutual funds and hedge desks use it to hide in the crowd. If they buy below Volume-Weighted Average Price, they’re getting in cheaper than average. If they sell above it, they’re exiting strong. Either way, they’re minimizing their market footprint.

VWAP vs. Moving Average

They look similar on a chart, but they’re not the same.

Feature	VWAP	Simple Moving Average (SMA)
Volume factored in?	Yes	No
Resets daily?	Yes	No
Better intraday?	Yes	Sometimes
Predictive power?	None (lagging indicator)	None (also lagging)

SMA shows you price trends. VWAP shows you where size actually traded. That distinction matters if you care about execution or short-term direction.

How to Calculate (If You Really Want To)

1. Typical Price = (High + Low + Close) / 3
2. Multiply by volume for that candle
3. Track cumulative total of (Typical Price × Volume)
4. Track cumulative volume
5. VWAP = cumulative (TP × Volume) / cumulative Volume

Yes, it’s that straightforward. But again, let your charting platform do the work.

When Volume-Weighted Average Price Shines

• Intraday trend confirmation
• Trade execution benchmark (especially for large orders)
• Mean reversion trades in low-volatility environments
• Scalping sessions where price respects the VWAP line

When Volume-Weighted Average Price Lags (Literally)

• Late in the session: The line starts to act like a long moving average.
• In strong trends: Price may ride above or below VWAP all day without mean-reverting.
• For multi-day analysis: Don’t use standard one across days. You’ll distort the math.

For anything beyond intraday, use anchored VWAP—different tool, same idea, but with more control over the starting point.

Pros and Cons Recap

Pros

• Helps gauge fair value based on where the size traded
• Useful for clean entries and exits
• Essential for institutions to minimize impact
• Can confirm or fade trend moves

Cons

• Lags hard by afternoon
• Not predictive—tells you what did happen
• Not useful in low-volume chop or illiquid names
• Gets misused by people who treat it like a magic line

Final Word

It isn’t a crystal ball. It’s a tape-measured read on intraday activity. Use it like pros do: as context for price, not a green light to trade. If you treat it like a dynamic benchmark—not a moving average with extra math—you’ll already be ahead of half the chart junkies out there.