What is VWAP?
The Volume Weighted Average Price (VWAP) is a trading benchmark used to determine the average price a security has traded at throughout the day, based on both price and volume. It’s primarily used by institutional investors to execute large orders without significantly impacting the market price. VWAP isn't a predictive indicator; it's a measure of historical price action. It provides insight into the 'fair' price for a security, considering the volume traded at each level.
How it Works
VWAP is calculated by summing the typical price (high + low + close / 3) multiplied by the volume for each trade, then dividing by the total volume traded during the specified period. TradingView automatically calculates this for you. Essentially, it gives more weight to prices where more volume was traded. A price above VWAP suggests buying pressure, while a price below indicates selling pressure.
Trading Signals
Traders use VWAP for various signals. Crossing *above* VWAP can be a bullish signal, suggesting potential buying opportunities. Conversely, crossing *below* VWAP can be a bearish signal, indicating potential selling opportunities. Some traders use VWAP as a dynamic support and resistance level. Institutional traders often aim to execute orders *at or below* VWAP to demonstrate good execution.
Basic Settings
In TradingView, VWAP has minimal settings. You can adjust the period (typically 'Daily' for intraday trading). The default color can be changed for visual preference. You can also adjust the line style (solid, dashed, etc.). Experiment with different timeframes to see how VWAP behaves on various charts. Remember to combine VWAP with other indicators for confirmation.