VWAP (Volume-Weighted Average Price)
What is VWAP?
VWAP stands for Volume-Weighted Average Price. It calculates the average price of an asset over a specific period, weighted by the amount of volume traded at each price level.
Unlike simple moving averages, VWAP takes both price and volume into account, giving a more accurate picture of where fair value lies during a trading session.
Why use VWAP in your strategy?
VWAP is widely used by institutional traders, scalpers, and intraday strategies because it helps determine:
Market sentiment: Are we trading above or below the average price?
Support and resistance: VWAP often acts as a magnet or rejection zone.
Entry zones: An pullback to VWAP in an uptrend may provide a high-probability buy.
It’s especially useful for short-term intraday trading, where understanding value areas and volume trends is crucial.
VWAP Settings in the AlgoBuilder
When adding VWAP to your strategy inside the AlgoBuilder, you’ll be able to customize or use the following parameters:
Session Reset
Whether VWAP resets daily or runs continuously (Daily is default).
Source
Price data used in the calculation (e.g., close, hlc3, ohlc4).
Offset
Visually shift the VWAP forward or backward on the chart for styling.
Band Multiplier
If VWAP bands are used, this defines their standard deviation. (Optional)
In most cases, default settings work well, but advanced users can fine-tune source and offset to better match with other indicators.
Example Usage
Long Entry Examples:
Pullback to VWAP: Price pulls back to VWAP in an uptrend and holds = a potential long entry. → Indicates support and fair-value re-entry zone.
VWAP Breakout: Price breaks above VWAP with increasing volume = long on breakout confirmation. → Suggests a shift in market control from sellers to buyers.
Short Entry Examples:
Failure at VWAP: Price retests VWAP from below but fails to break through = a potential short entry. → Acts as a resistance level in a downtrend.
Break Below VWAP: Price breaks and closes below VWAP on strong volume — short position confirmed. → Suggests bearish control of the session.
🎯 Take Profit / Exit Examples:
Long Position:
Exit near upper deviation band (if enabled): Suggests price is extended from average value.
Exit if price closes back below VWAP: May signal trend weakening or reversal.
Short Position:
Exit near lower deviation band (if enabled): Signifies potential oversold conditions.
Exit if price breaks and holds above VWAP: Implies buyers are regaining control.
Tips for Using VWAP in the AlgoBuilder
Combine with momentum indicators (e.g., RSI, MACD) for stronger confirmation.
VWAP works best on lower timeframes (5m–1h) for intraday strategies.
Use VWAP as a trend filter only go long above VWAP and short below.
Incorporate VWAP in exit logic to secure profits around key value zones.
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