VWAP indicator: what it is and how it’s worked out
By Bec, futures trader and founder of Wildflower · Updated
VWAP (volume weighted average price) is the average price traded since the start of the session, where prices with more How many contracts or shares traded in a stretch of time, such as one candle.More in the glossary count for more. On each candle, it’s the running total of price × volume, divided by the running total of volume. It starts again at the start of each session.
What VWAP is, and why volume matters
A normal average of prices treats every candle the same. But some candles have far more trading in them than others. VWAP gives each price a say based on how much traded there. A price where 800 contracts changed hands counts twice as much as one where 400 did.
So VWAP is close to the average price of every contract traded in the session so far. That’s why it’s called the Volume weighted average price: the average price traded since a starting point, where prices with more volume count for more.More in the glossary. It’s an estimate: a chart doesn’t know the price of every trade inside a candle, so it uses one price per candle and that candle’s total volume.
Because it’s a running total from the start of the session, it’s one line that changes as the day goes on. Early in the session it moves a lot. Later, each new candle is a small part of the total, so the line moves more slowly.
How VWAP is worked out, step by step
1. Average each candle’s high, low and close
Add the high, low and close, and divide by 3. This is the candle’s A candle’s high, low and close added together and divided by three. TradingView calls it HLC3. Most VWAP lines are built from it.More in the glossary. TradingView calls it HLC3.
2. Note each candle’s volume
How many contracts traded in that candle. Here: 800, 400, 400 and 400.
3. Multiply, add up and divide
Keep a running total of typical price × volume, and a running total of volume. Divide one by the other.
4. Repeat on every candle
Add each new candle to both totals and divide again. Join the answers and you have the VWAP line.
- Candle 1: 101 × 800 = 80,800. Totals: 80,800 and 800. VWAP = 80,800 ÷ 800 = 101.
- Candle 2: 104 × 400 = 41,600. Totals: 122,400 and 1,200. VWAP = 102.
- Candle 3: 106 × 400 = 42,400. Totals: 164,800 and 1,600. VWAP = 103.
- Candle 4: 107 × 400 = 42,800. Totals: 207,600 and 2,000. VWAP = 103.8.
Notice candle 1. It had twice the volume, so it keeps pulling VWAP towards 101 even as price rises. Most charting tools use the typical price like this. Some let you use the close, or another price, instead. The line then reads a little differently.
Why VWAP starts again each session
The standard VWAP is a session VWAP. At the start of each A stretch of the trading day with a set start and end, such as the hours a big stock exchange is open.More in the glossary, both running totals go back to zero, and the first candle’s typical price is the new VWAP. So each day’s line only describes that day’s trading.
Futures trade nearly around the clock, so “the start of the session” depends on your settings. Some charts start VWAP at the exchange’s daily reopen, others at a set time such as the 9:30 New York open. Two charts of the same market can show different VWAPs for that reason alone.
You can also start VWAP from any candle you pick, such as a big high or low. That’s called an anchored VWAP.
How traders read VWAP
Above or below. When price is above VWAP, it’s trading above the session’s average so far. Below, it’s trading under it. Many traders use that as a quick read of which side has been stronger today.
A close across. A candle closes on the other side of VWAP from where price had been. Some rules ask for the close to be a set number of The smallest step a price can move. On many stock index futures that’s 0.25 of a point.More in the glossary past the line.
Back to the line and away. Price has stayed on one side for a while, comes back to VWAP (or within a distance you set), and then moves away again on the same side.
Some large traders use VWAP as a yardstick for how well their own orders were filled compared with the day’s average. That’s one reason it’s so widely watched. It doesn’t mean price has to react to it.
What counts as a VWAP cross, and what doesn’t
The close decides it. A cross means a candle closed on the other side. A wick that pokes through and comes back is a touch, not a close across.
How far past. Some rules ask for a close a set distance past VWAP, so a close just a hair past doesn’t count. The third picture uses a made-up rule of half a point. The distance is your choice.
The line moves with the candle. VWAP includes the candle that’s still forming, so the line itself shifts until that candle closes. Many traders only judge a cross once the candle has closed.
Often confused with
Moving average. Averages the last few closes, with no volume, and never resets. Read about moving averages.
Volume weighted moving average (VWMA). Weights by volume like VWAP, but over a fixed number of candles that moves along, instead of from the session start.
VWAP bands. Lines a number of standard deviations above and below VWAP. Read about VWAP bands.
Point of control. The single price where the most volume traded, from a volume profile. It’s a level, not an average. Read about the point of control.
Marking VWAP setups on your chart
Mark your own rules on a chart
Wildflower’s Indicator marks things on a chart from rules you describe in plain words, with every number typed by you. It builds from moving averages, the RSI, Bollinger Bands, candle patterns, opening ranges and more. VWAP isn’t one of its building blocks. If you describe a VWAP rule, it tells you plainly. Everything it can build, you can check on a chart for free, then add to TradingView with a step-by-step guide.
Try it free. You only pay when you add it to TradingView.
Common questions
What does VWAP stand for?
Volume weighted average price.
How is VWAP calculated?
Running total of typical price × volume, divided by running total of volume, from the start of the session. See the worked example.
What is the typical price?
A candle’s high, low and close added together and divided by 3. TradingView calls it HLC3. Most VWAP lines are built from it.
Does VWAP reset every day?
A session VWAP does. It starts again at the start of each session. An anchored VWAP starts from a candle you choose.
What’s the difference between VWAP and a moving average?
VWAP weights each price by its volume and runs from the session start. A moving average treats each close the same over a fixed number of candles.
Why is VWAP different on two charts of the same market?
Usually the session start is set differently, or one uses a different price (like the close) instead of the typical price.
What does it mean when price is above VWAP?
Price is trading above the session’s volume weighted average so far. It describes where price is, not where it goes next.
Which timeframe is best for VWAP?
There’s no best one. A session VWAP covers the same trading on any intraday chart, but bigger candles use fewer prices, so the numbers can differ slightly.
Does VWAP work on futures?
It can be worked out on any market that reports volume, including futures. What counts as the session start is a setting you choose.