VWAP stands for Volume Weighted Average Price. It shows the average price a stock has traded at throughout the day, based on both volume and price. It’s a helpful benchmark for determining whether a stock is trading at a fair value.
VWAP combines price and volume:
• It updates throughout the day.
• It helps identify the average price paid by traders.
• VWAP is shown as a line on intraday charts (like 1-minute or 5-minute).
If a stock is trading above VWAP, it means buyers are in control — it could be a bullish signal. If it’s below VWAP, sellers may be in control — a bearish sign. Day traders often use VWAP as a support or resistance level.
VWAP is important because it shows the real-time average price buyers and sellers are paying. Many institutional traders use VWAP to decide when to enter or exit a position without affecting the market too much.
Example: A penny stock trades below VWAP all morning. Then it breaks above VWAP on heavy volume — that could signal a shift in momentum and a potential long entry.