What it is
VWAP began as a benchmark for large funds: if they bought below the day's VWAP, they had a better price than the average trader that day. Day traders now use it as a fair value line and a dividing line between buyers and sellers.
The bands show how far price has stretched from VWAP, measured in standard deviations (a measure of spread). On forex and CFD charts, volume is usually tick volume, the number of price changes, rather than the number of contracts traded; it still tracks busy and quiet periods well enough for VWAP to be useful.
How it is calculated
For each candle since the reset, work out the typical price (high + low + close) / 3 and multiply it by that candle's volume. VWAP is the running total of those values divided by the running total of volume. The bands sit 1, 2 or 3 standard deviations of price around VWAP, also weighted by volume. Everything restarts at the reset point: by default the start of each day.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| reset | day | hour, session, day, week, month | When VWAP starts counting again. Day is standard for intraday trading; week and month give longer term fair value lines. |
| bands | 1 | 0 to 3 | How many sets of standard deviation bands are drawn. 0 shows the line only. |
How to read it
How to trade it
- 1
On a 5 minute US30 chart after the New York open, wait for price to hold above a rising VWAP.
- 2
Entry trigger: a pullback that touches VWAP and closes back above it. Enter on the close of that candle.
- 3
Stop a little below VWAP or below the pullback low, typically 15 to 40 points on US30 at 5 minutes depending on the day's ATR.
- 4
Target the first band above, then the high of the day. Trail the rest and exit on a close below VWAP.
- 5
On gold, the same pullback works around the London and New York sessions; mirror the plan below VWAP for shorts.
Two closes below VWAP after a long entry, with price failing to get back above it, cancel the trade. A VWAP that flattens and starts falling ends the trend day view.
On WickSpeak, VWAP writes a plain-English reading on the live candle: whether price is above or below it, how far away in points, how to trade it and what would prove it wrong. VWAP is also one of WickSpeak's key levels, shown with how many points away it is. In Playbook you can test: price crosses above it, price crosses below it, price is above it, price is below it, it is rising, or it is falling. WickSpeak anchors VWAP to the real start of the day, week or session, so the same candle shows the same VWAP however far you scroll.
Best markets and timeframes
An intraday tool: US30, NAS100 and gold on 1 to 15 minute charts, during the busy London and New York hours. On daily charts use the weekly or monthly reset instead.
Common mistakes
- Buying the first touch of VWAP from below on a day that has been trending down.
- Using daily VWAP on a 4 hour chart, where it resets too often to mean much.
- Treating VWAP as a hard wall. It is a reference area; allow some room for the stop.
Works well with
Questions traders ask
What is VWAP in simple terms?
It is the average price everyone has paid today, giving more weight to prices where more was traded. If price is above it, the average buyer today is in profit; below it, the average buyer is losing.
Is VWAP a good indicator for day trading?
It is one of the most watched lines for day trading, because many large traders use it as a benchmark. It works best on trending days and as a filter for which side to trade, not as a signal alone.
Why does VWAP reset each day?
Because it measures the average price for a period, and the day is the most common period for intraday traders. WickSpeak can also reset it each hour, session, week or month.
Does VWAP work on forex and gold?
Yes, with the caveat that forex and CFD volume is usually tick volume, the number of price changes. Tick volume rises and falls with real activity, so VWAP still marks the day's average well.