VWAP (Volume Weighted Average Price) Tutorial (click here to gain access)
VWAP is used to calculate stock average price over a period of time. As the name suggests, the stock average price weighted by the total trading volume. However, VWAP is exclusively a day trading indicator – it will not show up on the daily chart or more expansive time compressions (e.g., weekly, monthly). Price hovering below VWAP may indicate that a security is “cheap” or “of value” on an intraday basis. Contrarily, price above VWAP may indicate that a security is “expensive” on an intraday basis.
VWAP gives the average price a security has traded at throughout the day. This is important because it provides insight into both the trend and value of a security.
VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by the number of shares traded) and then dividing by the total shares traded.
Traders may use VWAP as a trend confirmation tool, and build trading rules around it. For example, when the price is above VWAP they may prefer to initiate long positions. When the price is below VWAP they may prefer to initiate short positions.