ACADEMY
What Is VWAP in Trading?
Welcome to the Top Trader series at PROP365 Academy. In this lesson, you'll learn how to practice VWAP strategies, understand the it's indicator, and integrate these insights into your daily trading routine for optimal performance.
The volume-weighted average price is a key trading indicator that blends price and volume into a single value, giving traders a clearer picture of a security’s true average price throughout the trading session. It resets daily and is calculated as:
VWAP = (Price × Volume) / Total Volume
This metric offers insight into whether current prices are above or below the market average, which helps determine optimal trade entries and exits.
Using VWAP Indicator for Strategy
Traders often chart it as a trendline on candlestick charts. A VWAP cross happens when the current market price crosses this line. These crosses act similarly to support and resistance levels and can trigger:
- Bullish signals when prices rise above it
- Bearish signals when prices fall below it
VWAP vs MVWAP
While VWAP is recalculated each day, MVWAP (Moving VWAP) averages multiple VWAP values over several periods. MVWAP is preferred by longer-term traders for its ability to smooth out short-term market noise.
| Indicator | Use Case | Duration |
| VWAP | Intraday trades | Resets daily |
| MVWAP | Swing/position trades | Rolls over days |
Algorithmic and Day Trading
Volume-weighted average price is widely used in algorithmic trading for its role in optimizing execution. Institutions use it as a benchmark to assess trade efficiency — buying below the price or selling above it indicates better-than-average execution.
Short-term traders leverage volume-weighted average price pullbacks in trending markets. For example:
- In uptrends: Buy on pullbacks near volume-weighted average price
- In downtrends: Short near volume-weighted average price when price rebounds
Practical Takeaways
- Use it for intraday direction and trade timing.
- Watch for it crosses to identify trend shifts.
- Compare execution prices to volume-weighted average price to assess trade quality.
- Combine VWAP with MVWAP to build flexible trade strategies.
Summary
Mastering the VWAP indicator and learning how to use it cross strategies will enhance your execution timing and help evaluate trade quality. Whether you're trading momentum or mean reversion, these techniques are vital tools in your trading arsenal. Ready to apply these strategies? Start trading smarter with real-time volume-weighted average price tools through your PROP365 account. Try PROP365 today and elevate your trading performance.
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Disclosure: All information provided on this site is intended solely for educational purposes related to trading on financial markets and does not serve as a specific investment recommendation. This is not an investment opportunity. You do not deposit any funds for investment. We do not ask for any funds for investment. There are no promises of rewards or returns. It’s crucial to differentiate between purchasing a program from PROP365 and depositing in a financial institution. The fees you pay for our programs are not deposits. PROP365 does not offer financial advice or issue or deal in financial products. All trading will occur on demo accounts under simulated live trading conditions. All funds are simulated trading funds, and all profits are simulated profits.
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