What is VWAP and how do day traders use it?
VWAP (volume-weighted average price) is the average price paid for a stock during the day, weighted by volume. Day traders use it as a fair-value line: holding above VWAP suggests buyers are in control, while failing below it suggests sellers are.
VWAP resets every trading day. Each trade's price is weighted by its size, so heavy trading at a price moves VWAP more than a few small trades.
Because large institutions often measure their fills against VWAP, the line tends to act as a reference point that price reacts to.
Common uses: a pullback that holds VWAP in an uptrend can be a lower-risk entry area with a stop just below it. A stock that keeps getting rejected at VWAP from below shows weakness. A reclaim — losing VWAP then closing back above it — can signal a shift.
VWAP works best on liquid, active stocks during the regular session and is less reliable in thin premarket trading. Like any tool, it needs a level, a confirmation candle and a defined stop.
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