VWAP (Volume Weighted Average Price)

What Is VWAP?

The Volume Weighted Average Price takes each price level, multiplies it by the volume traded at that level, and divides by total volume. Unlike a simple Moving Average, VWAP gives more weight to prices where heavy trading occurred. It resets at the start of each session, making it purely an intraday tool. Institutional traders use it extensively as a benchmark for execution quality: buying below VWAP is considered favorable, above it is unfavorable.

VWAP in Forex Trading

Since forex lacks centralized volume, platforms use tick volume for VWAP calculations. Despite this limitation, VWAP serves as effective intraday support and resistance. In an uptrend day, price often pulls back to VWAP and bounces. In a downtrend day, rallies to VWAP tend to get rejected. The first pullback to VWAP after a strong directional open is one of the most commonly traded intraday patterns on EUR/USD and GBP/USD.

VWAP Bands and Strategies

Some traders add standard deviation bands around VWAP (similar to Bollinger Bands) to create VWAP bands. Price reaching 2 standard deviations above VWAP is considered extended and may revert. This mean-reversion approach works in range-bound sessions but fails during strong trend days. Combine VWAP with the RSI (Relative Strength Index) for confluence: a pullback to VWAP with RSI showing oversold provides a higher-probability intraday entry than either signal alone.