VWAP, or Volume Weighted Average Price, is the average price of a stock during the day, weighted by how much volume traded at each price. Intraday traders use it as a benchmark of fair value and trend for that session.
It is calculated from the market open and resets every day. Prices with heavy trading pull the VWAP towards them more than prices with light trading. If a stock is trading above VWAP, buyers have broadly been in control that day; below it, sellers have.
Here is how traders use it in practice:
- Trend filter: some only take long trades when price is above VWAP and shorts when below.
- Pullback entries: in a strong uptrend, a dip to VWAP that holds can offer a lower-risk entry.
- Execution benchmark: institutions try to buy below VWAP and sell above it.
Say a hypothetical stock opens at ₹410, rallies to ₹422 and pulls back to its VWAP at ₹415 around 11 am. If it bounces with rising volume, an intraday trader might go long with a stop just below ₹413.
The mistake is treating VWAP as magic support. On a strong trend day it can be broken and never revisited. It is also less useful in the first 15 minutes, when very little volume has traded. Our Technical Analysis course covers VWAP with live intraday practice.