VWAP stands for Volume Weighted Average Price. It is the average price at which a stock, index future or option has traded since the start of the day, where each price is weighted by how much volume traded at it. If a lot of shares changed hands at ₹1,400 and only a few at ₹1,420, the VWAP will sit much closer to ₹1,400.
A simple average of prices treats every minute the same. VWAP counts where the money actually went. That makes it a fair answer to the question: "What was the typical price paid today?"
How VWAP is calculated
For each candle (for example each minute), take a representative price, often the typical price = (high + low + close) ÷ 3, and multiply it by that candle's volume. Add these up from the open, and divide by the total volume from the open.
VWAP = sum of (price × volume) ÷ sum of volume, since the open
The calculation runs through the day, so VWAP updates every candle, and it resets at the next session's open. At 09:16 the VWAP is basically the first minute's price; by 15:00 it reflects almost the whole day's trading, so it moves slowly late in the day.
A worked example
Suppose a stock trades in three 5-minute candles after the open:
| Candle | Typical price | Volume (shares) | Price × volume |
|---|---|---|---|
| 09:15 to 09:20 | ₹1,400 | 50,000 | ₹7,00,00,000 |
| 09:20 to 09:25 | ₹1,410 | 20,000 | ₹2,82,00,000 |
| 09:25 to 09:30 | ₹1,420 | 10,000 | ₹1,42,00,000 |
Total price × volume = ₹11,24,00,000; total volume = 80,000 shares. VWAP = 11,24,00,000 ÷ 80,000 = ₹1,405. A simple average of the three prices would be ₹1,410. VWAP is lower because most trading happened at ₹1,400. If the stock now trades at ₹1,420, it is ₹15 above VWAP: the average buyer of the day is in profit.
Live example: VWAP on the NIFTY straddle
ScreenerCharts draws a VWAP on its live straddle charts, the combined price of the at-the-money call and put. The dashed line in this chart is the straddle's VWAP since the open:
Watch where the solid line sits against the dashed one. A straddle trading below its VWAP and drifting lower means option sellers have been in control today; a move back above VWAP means the market is moving more than expected or fear is rising. The straddle guide explains why the line usually falls through the day.
The same reading works on a second index. Here is the BANKNIFTY straddle with its own VWAP:
Comparing the two shows whether the whole market is quiet or only one index is. If one straddle is above VWAP and the other below, the move is concentrated in one part of the market.
Why VWAP matters: who watches it
- Funds and large investors. When a mutual fund buys a large block over a day, its dealer is often judged against VWAP: buying below VWAP counts as good execution. Many institutional orders are split by algorithms that aim to trade near VWAP. This steady flow is one reason VWAP can act as a magnet.
- Intraday traders. VWAP is the most common intraday trend line: above it is read as a positive day for the stock, below it as a negative one.
- Option sellers. Many intraday straddle sellers use the straddle's VWAP as their line: they hold the short position while the straddle is below VWAP and exit if it closes above. The intraday short straddle guide covers this in detail.
How traders use VWAP
- Bias for the day. Only look for long trades while the price is above VWAP, and short trades while it is below.
- Pullback entries. In a strong morning move up, the first dip back to VWAP that holds is a common entry point, with a stop a little below VWAP.
- Reclaim and loss. A stock that opens weak, stays below VWAP all morning and then closes above it in the afternoon is said to "reclaim VWAP", a sign of improving demand.
- With pivots. VWAP plus the day's pivot levels gives a simple intraday map. When both sit close together, that area is watched closely.
- Standard deviation bands. Some charts add bands one and two standard deviations around VWAP, similar to Bollinger Bands, to show how stretched the price is.
A day with VWAP, step by step
Here is how an intraday trader might follow a stock against its VWAP through one session. The prices are illustrative.
- 09:15 to 09:45: the stock opens at ₹1,400 after positive overnight cues and trades between ₹1,395 and ₹1,412. VWAP settles around ₹1,404. With so little time gone, the trader treats it as unreliable and waits.
- 09:45 to 11:00: the stock climbs to ₹1,425 on rising volume. VWAP follows slowly up to about ₹1,410. Price is well above VWAP: the day's bias is positive.
- 11:00 to 12:30: a quiet pullback to ₹1,413, close to VWAP, on lower volume. This is the classic "first test of VWAP" that pullback traders watch. The price holds and turns up.
- 13:30: a second dip breaks below VWAP at about ₹1,414 and closes two 5-minute candles under it. The positive bias is now in doubt; a trader who bought the pullback with a stop under VWAP would exit here.
- 15:00 to 15:30: the stock recovers to ₹1,418 and closes slightly above VWAP. The day ends mixed rather than strong.
Nothing in this sequence predicted the afternoon. VWAP simply gave the trader a fixed reference for judging whether the morning's strength was still intact, and a clear place to stop out when it was not.
Anchored VWAP and longer periods
Normal VWAP resets daily. Anchored VWAP starts the calculation from a chosen moment instead: a results day, a big gap, a 52-week low or a budget day. It then shows the average price paid by everyone who traded since that event. If a stock is above the VWAP anchored to its results day, the average buyer since results is in profit. Weekly and monthly VWAPs work on the same idea for swing traders.
Limits and common mistakes
- Early-morning VWAP is unstable. In the first 15 to 30 minutes there is little volume behind it, so it can swing a lot. It becomes more meaningful as the day goes on.
- It lags late in the day. By 15:00 VWAP includes most of the session's volume and barely moves, so it reacts slowly to afternoon trends.
- It needs volume. An index has no traded volume of its own, so index VWAP is usually taken from the index future. For thinly traded stocks VWAP is less reliable.
- Not a support line by law. On strong trend days the price can leave VWAP early and never come back.
- Daily charts. A daily VWAP on a daily chart is just one number per day; the indicator is designed for intraday charts.
VWAP is simple and honest: it shows where today's money changed hands. Combined with volume and a few levels, it is one of the most practical tools for anyone trading within the day.