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
Money Flow Index (MFI)
The Money Flow Index is a volume-weighted RSI that measures buying and selling pressure by incorporating both price and volume data. It oscillates between 0 and 100, with readings above 80 considered overbought and below 20 considered oversold. Because it includes volume, MFI often provides earlier reversal signals than standard RSI, making it particularly effective for identifying exhaustion moves.
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.
Elder's Force Index
Elder's Force Index, developed by Dr Alexander Elder, measures the force behind price movements by combining three essential elements: direction of price change, magnitude of that change, and volume. The raw force index is smoothed with an exponential moving average to create a practical oscillator that identifies trend strength, potential reversals, and the best pullback entries during an established trend.