VWAP: the session-anchored average that institutions actually use

What it measures

VWAP is the average price of every unit traded in a session, weighted by volume. Unlike a moving average it is not a smoothing of price — it is the actual average fill of everyone who traded during the period.

That makes it a reference for execution quality: buying below the session VWAP means buying better than the session’s average participant.

It is the one line on a chart that a large number of participants are measured against directly. Execution desks are benchmarked on it, which is why price so often reacts at it — the level is not predictive so much as self-fulfilling, because a great many orders are sitting there for reasons that have nothing to do with technical analysis.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   For each bar, take the typical price — the average of high, low and close.

2. 2

   Multiply it by the bar’s volume and add it to a running total.

3. 3

   Add the bar’s volume to a separate running total.

4. 4

   Divide the first total by the second. Reset both at each session boundary.

How to read it

• Price above VWAP means buyers are, on average, in profit for the session; below it means sellers are.
• A first test of VWAP after a strong move away from it is the most watched level of an intraday session, because a lot of resting interest sits there.
• VWAP is only meaningful intraday. On a daily or weekly chart the anchor is so far back that the line flattens into something that tells you nothing.
• The further price is from VWAP, the more extended the session is relative to where it actually traded.
• Early in a session VWAP is built from very little volume and moves erratically; it only becomes a stable reference once a few hours of trade sit behind it.

Where it misleads

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