VWAP Strategies
Overview
Volume Weighted Average Price (VWAP) represents the average price an asset has traded at throughout the session, weighted by volume. It serves as a dynamic intraday fair-value benchmark used by institutional traders to gauge execution quality. For retail traders, VWAP acts as a powerful support/resistance level and trend filter — price above VWAP suggests bullish intraday bias, while price below suggests bearish bias.
Key Concepts
VWAP resets each trading session (or can be anchored to specific events). Price above VWAP = intraday bullish bias; below = bearish. Standard deviation bands (1, 2, 3 SD) create dynamic support/resistance. Institutional traders benchmark execution against VWAP. Anchored VWAP from key events provides longer-term support/resistance.
Entry Signals
Enter long on a pullback to VWAP during an uptrend day when price bounces with a reversal candle. Go short on a rally to VWAP during a downtrend day when price rejects with volume. Use the first-touch VWAP test after the open as a key decision point. Enter mean-reversion trades from the second or third standard deviation band back toward VWAP.
Exit Signals
Target the opposite VWAP standard deviation band for mean-reversion trades. Exit trend trades if price closes below VWAP (for longs) or above VWAP (for shorts) with conviction. Trail stops using short-term price structure while targeting the next deviation band. Take partial profits at VWAP and let the remainder target the opposing deviation band.
Best Timeframes
1M, 5M, 15M
Pro Tips
VWAP is most effective for intraday trading — it resets daily, making it less useful on higher timeframes unless you use anchored VWAP. The first touch of VWAP each session carries the most significance. Use VWAP in conjunction with pre-market levels and prior-day reference points for a complete intraday framework.
More Topics in This Category
Chaikin Money Flow
Chaikin Money Flow (CMF) measures the accumulation or distribution of an asset over a specified period by combining price and volume data. It oscillates between -1 and +1, with positive values indicating buying pressure and negative values indicating selling pressure. CMF differs from other volume indicators by incorporating both the close location within the bar and the volume, then averaging the result over a lookback period.
Accumulation/Distribution Line
The Accumulation/Distribution Line measures the cumulative flow of money into and out of an asset by examining where price closes within its range relative to volume. Unlike OBV, which only considers whether the close is up or down, the A/D Line weights volume by the close's position within the bar's range, giving a more nuanced picture of buying and selling pressure.
On-Balance Volume (OBV)
On-Balance Volume is a cumulative volume indicator that adds volume on up days and subtracts it on down days, creating a running total that reveals whether volume is flowing into or out of an asset. Developed by Joe Granville, OBV often leads price — a rising OBV during a consolidation suggests accumulation, while a falling OBV during a hold signals distribution. The direction of OBV matters more than its absolute value.
Volume Spread Analysis (VSA)
Volume Spread Analysis examines the relationship between price spread (the range of a candle), closing position within that spread, and the accompanying volume to determine the intentions of institutional market participants. Developed from the work of Richard Wyckoff and refined by Tom Williams, VSA identifies accumulation, distribution, and supply/demand imbalances by reading the story that volume and price action tell together.