VWAP (Volume-Weighted Average Price)

How it's calculated

VWAP = Σ (price × volume) ÷ Σ volume

Each price counts in proportion to its volume. On a bar chart, the price used for each bar is usually its typical price, (high + low + close) ÷ 3. The sums start at the beginning of the session, so VWAP resets every day. An anchored VWAP starts the sums at a chosen event instead, such as an earnings gap. Whether premarket trades are included depends on the data provider, so values from different tools may not match.

Why it matters

• Execution benchmark: institutions often judge their fills against VWAP. Buying below it means paying less than the average participant that day.
• Intraday bias: many day traders read price above a rising VWAP as buyers in control, and a decisive break back below it as a warning.
• Reference level: stretched moves far from VWAP sometimes drift back toward it, but nothing forces them to.

Example

For example, a hypothetical session has three bars: 1,000 shares at a typical price of $10.00, 4,000 at $10.50 and 500 at $11.00. VWAP = (10,000 + 42,000 + 5,500) ÷ 5,500 ≈ $10.45. The simple average of the three prices is $10.50; VWAP sits lower because twice as many shares traded at $10.00 as at $11.00.

Common mistakes

• Comparing VWAP from sources that treat premarket differently.
• Treating VWAP like a moving average. Session VWAP never drops old data, so it moves more and more slowly as the day goes on.
• Using a VWAP touch as a signal on its own, without volume or structure behind it.

How PatternX uses it

In Momentum Lab, Opening Momentum Continuation can use VWAP as one of its optional confirmations, when the data provider supplies it. Alpaca and Polygon provide VWAP; IBKR data has none, and the VWAP confirmation fails when the provider has no VWAP. The strategy's default confirmation is a break above the premarket high, and any confirmation must pass within 15 minutes of the 09:30 open. How the data providers differ is covered in market data.