---
title: VWAP (Volume Weighted Average Price)
description: "The **VWAP (Volume Weighted Average Price)** is one of the most widely used indicators among professional traders to analyze the average price of a financial instrument while taking traded volume into account. Unlike a simple average of prices, the VWAP…"
url: "https://www.overcharts.com/en/helpcenter/docs/vwap-volume-weighted-average-price/"
updated: "2026-07-03"
category: Indicators
---

# VWAP (Volume Weighted Average Price)

The **VWAP (Volume Weighted Average Price)** is one of the most widely used indicators among professional traders to analyze the average price of a financial instrument while taking traded volume into account.

Unlike a simple average of prices, the VWAP assigns greater weight to prices at which higher trading volume has occurred, providing a much more accurate representation of the **fair price** of the trading session or the selected period.

The VWAP is used both as a trend indicator and as a dynamic support and resistance level, making it particularly effective for intraday market analysis.

## **What is the VWAP used for?**

The VWAP helps determine whether the current price is trading above or below the volume-weighted average price.

In general:

- **Price above the VWAP**
  - Indicates bullish pressure.
  - Suggests that buyers are in control of the market.
- **Price below the VWAP**
  - Indicates bearish pressure.
  - Suggests that sellers are in control of the market.

Many traders also use the VWAP as a benchmark to evaluate the quality of their trade executions:

- buying below the VWAP is generally considered a favorable execution;
- selling above the VWAP is generally considered a favorable execution.

## **Signal Interpretation**

The VWAP is not an indicator that automatically generates buy or sell signals, but rather an important trading reference.

Among its most common uses:

#### **Trend Following**

When the price remains consistently above the VWAP, the market generally exhibits a bullish structure.

When the price remains consistently below the VWAP, the market generally exhibits a bearish structure.

#### **Dynamic Support and Resistance**

The VWAP often acts as a dynamic support or resistance level.

During a trend:

- pullbacks toward the VWAP may provide opportunities to enter in the direction of the trend;
- strong breakouts through the VWAP may indicate a shift in the dominant market direction.

#### **Mean Reversion**

In sideways markets, the price frequently tends to return toward the VWAP after moving significantly away from it.

For this reason, many traders use the VWAP as a reference point for mean reversion strategies.

## **VWAP Formula**

The VWAP is calculated by summing the product of the price and volume of each bar and dividing the result by the total volume of all bars.

The formula is:

VWAP=∑(Pricei×Volumei)∑VolumeiVWAP=\frac{\sum (Price_i \times Volume_i)}{\sum Volume_i}

where:

- **Priceᵢ** is the bar's typical price, calculated as: **(High + Low + Close) / 3**;
- **Volumeᵢ** is the bar's volume.

## **Types of VWAP Available in Overcharts**

Overcharts provides several VWAP variants:

### **VWAP**

This is the classic VWAP.

The calculation starts at the beginning of the session (or the selected period) and continues until the end of the session, providing the volume-weighted average price.

It is the most commonly used version for intraday trading.

### **VWAP (Rolling)**

The Rolling VWAP is not reset at the beginning of each session.

Instead, it is calculated using a moving window consisting of a configurable number of bars.

This approach allows the VWAP to continuously adapt to market conditions, making it particularly useful for market analysis.

### **VWAP (Anchored)**

The Anchored VWAP allows you to start the calculation from a specific point selected by the trader.

The anchor point can be set:

- directly on the chart by clicking. The drawing is started from the **Drawing Tools** toolbar;
- through the indicator properties.

This variant is particularly useful for analyzing market behavior starting from significant events, such as:

- an important swing high or swing low;
- the beginning of a trend;
- the breakout of a technical level;
- a specific date;
- a major economic announcement;
- the beginning of a new market phase.

The Anchored VWAP measures the volume-weighted average price starting from the event considered most significant by the trader.

### **VWAP (Bands)**

A Bands version is available for each of the VWAP variants described above. In addition to the main VWAP line, one or more upper and lower bands are calculated by adding or subtracting a multiple of the standard deviation.

The bands can be used to:

- evaluate how far the price has moved away from its average value;
- identify potential overextended price areas;
- identify potential dynamic support and resistance levels;
- build Mean Reversion strategies.

The band width is fully configurable through the standard deviation multiplier.

Two calculation methods are available for the bands: **Method #1** and **Method #2**.

Set the calculation method in the indicator configuration under the **'Std Dev - Calculation Method'** property.

#### **Method #1** - Classic Standard Deviation (Unweighted)

This method uses the classic standard deviation formula. It calculates the standard deviation by giving the same weight to every bar, regardless of its volume.

The standard deviation is calculated as:

σ=N∑Pi2−(∑Pi)2N\boxed{ \sigma= \frac{\sqrt{N\sum P_i^2-\left(\sum P_i\right)^2}} {N} }

where

**N** = number of bars

**Pᵢ** = (High + Low + Close) / 3

#### **Method #2** - Volume-Weighted Standard Deviation (VWAP)

In this method, each price is weighted by its traded volume.

The standard deviation is calculated as:

σ=∑(Pi2Vi)∑Vi−VWAP2\boxed{ \sigma= \sqrt{ \frac{\sum(P_i^2V_i)} {\sum V_i} - VWAP^2 } }

where

**Vᵢ** = bar volume

**Pᵢ** = (High + Low + Close) / 3

#### **Difference Between the Two Methods**

| Method #1 | Method #2 |
| --- | --- |
| All bars have the same weight | Each bar is weighted according to its volume |
| Standard deviation of prices | Volume-weighted standard deviation of prices |
| Uses the classic standard deviation formula | Uses the formula adopted by many platforms for VWAP (for example, TradingView) |
| The bands depend only on price movement | The bands are influenced by both price movement and traded volume |

In practice, **Method #1** measures the dispersion of prices over time, while **Method #2** measures the dispersion of prices around the VWAP, giving greater importance to price levels where more volume has been traded. For this reason, **Method #2** is generally considered more appropriate for constructing bands around the VWAP.