What it measures

The volume-weighted average price is the average price at which the asset has traded since an anchor point, usually the start of the trading day, with each bar's price weighted by the volume traded on it. It is the institution's benchmark: an execution desk that buys below the day's VWAP has beaten the average participant. On a chart it is read as fair value for the session.

The calculation

VWAP = Σ(typical price × volume) / Σ(volume), summed from the anchor to now

Typical price is (high + low + close) / 3. The sums reset at the anchor, so VWAP is a cumulative measure, not a rolling window; the volume-weighted moving average is its rolling cousin.

Inputs and defaults

  • Anchor: the session by default; weekly, monthly or an event (an earnings release, a swing low) in anchored versions.
  • Bands: optional standard-deviation bands around it, like Bollinger Bands on a cumulative average.

How it is read

Price above VWAP means the average buyer of the session is in profit, which is read as a bullish session; below, bearish. Reversion traders fade moves away from VWAP; trend traders buy pullbacks to it. Many of the screened session strategies use it as the line that defines the day's bias.

Where it fails

Crypto trades around the clock, so "the session" is whatever midnight the chart uses, usually UTC, and the reset is a convention with no market behind it. Early in the session the average is built from a few bars and swings wildly. Volume is exchange-specific, so VWAP on one venue's data is that venue's VWAP.

How the desk reads it

The desk reads a VWAP rule by asking which midnight it resets at and which venue's volume it weighs, because the backtest inherits both choices. A rule that works on one exchange's VWAP has been tested on one exchange's volume.

In the desk's screen

Of the 614 screened strategies in the library, 61 (9.9%) use this indicator somewhere in their logic.

17 of those were gross-profitable on enough cells to reach the after-fee replay.

The count is read from the compiled code of each strategy in the library; a strategy that computes the indicator by hand under another name is not counted. The desk's own rules are not part of the count.