What Is the Volume-Weighted Average Price (VWAP)?
The volume-weighted average price (VWAP) is a trading benchmark used by traders that gives the average price security has traded at throughout the day, based on both volume and price.
VWAP is important because it provides traders with insight into both the trend and value of security.
To calculate VWAP, you use the following equation:
VWAP = ∑(amount of asset bought x asset price)/total shares purchased that day
The standard VWAP is calculated using all orders of a given trading day, but it can also be used to look at multiple time frames.
The VWAP ratio is then presented on a chart as a line.
It has been likened to a moving average, in that when the price is above the VWAP line, the market is seen as in an uptrend, and when the price is below the VWAP, the market is in a downtrend.