How it works
For every trade in a chosen window, multiply price by volume and sum those products. Divide by total volume traded. The result is the price at which an average share or unit changed hands, weighted by where the action actually happened. Intraday VWAP resets each session; longer-period VWAPs (5-day, monthly) roll forward.
Example
Three trades in a 30-minute window: 100 shares at $50.00, 300 shares at $50.10, 200 shares at $50.20. VWAP = (100×50.00 + 300×50.10 + 200×50.20) / 600 = $50.10. If you executed your 600-share buy at $50.05, you beat VWAP by 5 cents per share, a $30 saving. If you executed at $50.15, you paid 5 cents more, a $30 loss against benchmark.
Why it matters
Institutional execution desks measure against VWAP because beating it means you executed better than the average market participant during your window. For retail traders, VWAP on a price chart acts as a dynamic support and resistance level: price above VWAP is the day’s buyer-dominated zone, below is seller-dominated. Many algorithmic strategies use VWAP-relative entries.
