Volume Weighted Average Price (VWAP)
VWAP is the volume-weighted average price calculated from the start of a trading session. It represents the average price a trader would have paid if they bought steadily throughout the session, weighted by volume at each price level. VWAP is the single most important benchmark for institutional execution quality.
How It Works
VWAP is computed cumulatively from the session start:
VWAP = Σ(Typical Price × Volume) / Σ(Volume)
where Typical Price = (High + Low + Close) / 3
Why VWAP Matters
Large institutional orders are often benchmarked against VWAP. A buy order executed at a price below VWAP is considered “good execution” — the trader paid less than the market average. This creates a self-reinforcing dynamic:
- When price is below VWAP, institutional buyers see an opportunity (discount to average).
- When price is above VWAP, institutional sellers see an opportunity (premium to average).
This gravitational pull toward VWAP makes it a powerful intraday reference.
Standard Deviation Bands
Optional bands are plotted at a specified number of standard deviations from VWAP. The standard deviation is calculated using the same cumulative volume-weighted approach:
Variance = Σ(Volume × (Typical Price - VWAP)²) / Σ(Volume)
Band = VWAP ± (bandMultiplier × √Variance)
Indicator Type
Overlay — VWAP and its bands are drawn directly on the price chart.
Settings
| Parameter | Type | Default | Description |
|---|
sessionReset | select | day | When to reset the VWAP calculation. Options: none, day, week, month. |
sessionStartHour | number | 0 | Hour (UTC, 0–23) at which the session begins. Only used when sessionReset is not none. |
showBands | boolean | false | Show standard deviation bands around VWAP. |
bandMultiplier | number | 1 | Number of standard deviations for band width. Common values: 1, 1.5, 2, 3. |
bandColor | color | #a855f7 | Fill color for the area between bands. |
bandOpacity | number | 0.15 | Transparency of the band fill (0.0 = invisible, 1.0 = solid). |
Session Reset Options
| Reset | Behavior | Best For |
|---|
none | VWAP accumulates continuously from the first visible bar. Never resets. | Multi-day context, position trading. |
day | Resets at sessionStartHour each day. Most common setting. | Intraday trading, daily benchmarks. |
week | Resets at the start of each calendar week (Monday at sessionStartHour). | Swing trading, weekly context. |
month | Resets at the start of each calendar month. | Monthly institutional benchmarks. |
For crypto futures trading, the default sessionStartHour: 0 (midnight UTC) aligns with the daily funding timestamp on most exchanges. If you trade aligned to the CME session, set sessionStartHour to 14 or 15 (UTC) to match the US equity open.
Band Multiplier Guide
| Multiplier | Interpretation |
|---|
| 1.0 | One standard deviation. Price exits this band roughly 32% of the time. Good for identifying mild extensions. |
| 1.5 | Moderate extension. A popular middle ground. |
| 2.0 | Two standard deviations. Price exits only ~5% of the time. Strong overbought/oversold signal. |
| 3.0 | Extreme extension. Rarely reached; when it is, a mean-reversion snap is likely. |
Interpretation
Intraday Trend Filter
The simplest VWAP application is as a trend filter:
- Price above VWAP: Intraday buyers are in control. Favor long entries.
- Price below VWAP: Intraday sellers are in control. Favor short entries.
This filter becomes more reliable as the session progresses and VWAP accumulates more data. Early in the session (first 30–60 minutes), VWAP is volatile and less meaningful.
VWAP as Support/Resistance
VWAP frequently acts as intraday support or resistance:
- In an uptrending day, price often pulls back to VWAP and bounces.
- In a downtrending day, price often rallies to VWAP and rejects.
- The first test of VWAP after a move tends to be the strongest.
Band Mean Reversion
When price reaches the outer bands (especially 2σ or 3σ), it has stretched significantly from the session average. These zones are high-probability mean-reversion areas:
- Price at upper band: Consider short entries or profit-taking on longs.
- Price at lower band: Consider long entries or profit-taking on shorts.
- Price returning to VWAP from a band: The “rubber band” snap-back, one of the most reliable intraday patterns.
Price above VWAP means institutional buyers are in control; below means sellers. The standard deviation bands act as dynamic support and resistance levels that expand with volatility and contract during consolidation.
VWAP Anchoring
By setting sessionReset: none, you create an anchored VWAP that accumulates from the beginning of the visible chart data. This is useful for analyzing the average cost basis of all participants since a significant event (trend start, breakdown, etc.).
Combining VWAP with Other Indicators
VWAP is most powerful when combined with:
| Companion Indicator | Combined Signal |
|---|
| Volume Bars | VWAP bounce + volume spike = strong confirmation |
| Delta | Price at VWAP + positive delta = aggressive buying at the average |
| Session Levels | VWAP near previous day high/low = confluence zone |
| Volume Profile | VWAP near POC (Point of Control) = double-strength magnet |
Practical Considerations
- First 30 minutes: VWAP is unstable early in the session because few data points have accumulated. Avoid trading VWAP signals in the first 30 minutes after session reset.
- Flat days: When the market ranges tightly, VWAP sits in the middle and price oscillates around it. In this context, band bounces become the primary tradeable signal.
- Gap days: If price gaps sharply at the session open, VWAP may take hours to “catch up.” In this case, the bands are more useful than VWAP itself.
- Session reset timing: In 24/7 crypto markets, there is no official “session.” The choice of
sessionStartHour is subjective. Midnight UTC and 8:00 AM UTC (Asian open) are common choices.
Alerts
VWAP does not currently support built-in alert rules. Use the general Alerts system for VWAP-based conditions.
- SMA — Simple Moving Average, non-volume-weighted
- EMA — Exponential Moving Average
- Bollinger Bands — Volatility bands around an SMA
- Session Levels — Previous session high/low/open as static levels