If you’re an intraday trader, the VWAP (Volume Weighted Average Price) is one of the most valuable tools you can use. It tells you where the “fair value” of an asset lies throughout the day, helping you trade alongside institutional players — not against them.
This guide explains how VWAP works and how to use it to improve your entries, exits, and overall trading strategy.
What is VWAP?
VWAP stands for Volume Weighted Average Price. It calculates the average price an asset has traded at during the day, weighted by volume.
In simple terms, VWAP shows where most traders — especially big institutions — are positioned.
How is VWAP Calculated?
The formula combines price and volume throughout the trading session:
VWAP = (Cumulative Price × Volume) / Cumulative Volume
Luckily, every charting platform calculates this automatically.
How to Use VWAP in Trading
1. Identify Fair Value
VWAP acts like a dynamic equilibrium point. If price is above VWAP, it’s considered bullish (buyers in control). If below, it’s bearish (sellers dominating).
2. Trade with Institutional Flow
Many institutional traders use VWAP as a benchmark. Staying on the right side of VWAP aligns you with “smart money.”
3. Entry and Exit Zones
- Buy near VWAP support in an uptrend
- Sell near VWAP resistance in a downtrend
Best Practices for VWAP
- Use VWAP primarily for intraday trading. It resets daily.
- Combine VWAP with price action and momentum indicators like RSI.
- Avoid trading solely because price touches VWAP — always confirm direction.
VWAP vs. Moving Averages
Unlike standard moving averages, VWAP factors in volume, making it more reflective of real trading activity — especially important when large orders influence price.
Example: VWAP Pullback Strategy
In an uptrend, wait for price to pull back to VWAP before entering long positions, using it as a dynamic support level.
How LogicINV AI Enhances VWAP Strategies
LogicINV AI monitors VWAP interactions and:
- Alerts you when price approaches VWAP with supporting momentum
- Filters out weak tests of VWAP to avoid false signals
- Combines VWAP data with volume spikes and sentiment for better intraday precision
Summary
- VWAP is essential for identifying intraday fair value.
- Use it to trade with institutional flow, not against it.
- Combine VWAP with other tools and let AI help filter quality setups.
➡️ Next Up: 5 Common VWAP Mistakes to Avoid (Module 2.5E)
Trade where the smart money trades. Use LogicINV AI to master VWAP-based strategies with confidence. Start your free trial today!
