Volume Weighted Average Price (VWAP)
Updated on March 7, 2023
VWAP stands for “Volume Weighted Average Price.” It is a technical indicator that is used to measure the average price of a stock or other security over a given period of time. Here are some key points to understand about VWAP:
How it works
VWAP takes into account both the price and the volume of a security to calculate the average price. It gives more weight to the prices of shares that were traded in higher volume. This helps to account for any unusual or large trades that might skew the average price.
Purpose and utility of VWAP
VWAP is often used by traders to assess the relative value of a security. It can be used to determine if a security is trading at a premium or discount to its average price. It can also be used to identify potential buying or selling opportunities based on whether the security is trading above or below its VWAP.
Some traders use VWAP as a benchmark to execute trades, they may try to buy the stock when it is trading below VWAP and sell when it is trading above VWAP.
Calculation of VWAP
VWAP is calculated by adding up the total value of all the shares traded during a given period, and then dividing that total value by the total number of shares traded.