VWAP Trading Strategies: The Complete Guide for Crypto
Trade like institutions. VWAP shows you the "fair price" that big players use as their benchmark—and it creates natural support and resistance you can exploit.
- VWAP is the volume-weighted average price—where most trading actually occurred. It's the institutional benchmark.
- Key strategies: Buy dips to VWAP in uptrends, fade extensions to ±2σ bands, use VWAP reclaims as entry signals.
- Thrive tracks VWAP levels and alerts you when price reaches key bands or reclaims/loses VWAP.
VWAP Band Calculator
Enter VWAP, current price, and standard deviation to see where price sits relative to the bands:
Price vs VWAP
+1.04%
Standard Deviations
+2.00σ
Condition
Overbought
Price is above +1σ band. Trend followers stay long, mean reversion traders start watching for reversal signals. VWAP acts as downside target if momentum fades.
What Is VWAP?
VWAP (Volume Weighted Average Price) is the average price weighted by volume throughout the trading session. Unlike a simple moving average that treats all prices equally, VWAP gives more weight to prices where more volume traded.
Think of it this way: if 80% of today's volume traded at $67,000 and 20% at $68,000, the VWAP would be closer to $67,000—not the midpoint. VWAP tells you where the real action happened.
Why VWAP matters:
- Institutional benchmark: Traders at funds are judged on whether they beat VWAP. This creates buying below and selling above.
- Fair value indicator: VWAP represents the "fair price" for the session. Extended moves away from it often revert.
- Dynamic support/resistance: Unlike static levels, VWAP adjusts throughout the day as volume accumulates.
- Trend filter: Price above VWAP = bullish session. Price below = bearish session.
How VWAP Is Calculated
VWAP is calculated cumulatively throughout the session:
For each candle, calculate: Typical Price = (High + Low + Close) / 3
Then: VWAP = Σ(Typical Price × Volume) / Σ(Volume)
The key insight: VWAP is cumulative. Early in the session, a single high-volume candle can dramatically shift VWAP. Later in the session, VWAP becomes more stable as the volume denominator grows. This means VWAP is most "movable" in the first hours and most reliable later.
Most trading platforms calculate VWAP automatically. You don't need to do the math— just understand that prices with more volume count more.
Understanding VWAP Bands
VWAP bands are standard deviation envelopes around the VWAP line. They show how extended price is relative to the volume-weighted average.
- VWAP (center line): The fair value benchmark. Price oscillates around this.
- ±1 Standard Deviation: Normal trading range. ~68% of price action should fall within this band.
- ±2 Standard Deviations: Extended territory. ~95% of price action falls here. Touches are potential reversal zones.
- ±3 Standard Deviations: Extreme extension. Rare—when hit, strong mean reversion is likely.
The bands widen as volatility increases and narrow during consolidation. Wide bands mean high volatility; narrow bands suggest a compression before a move.
VWAP vs Other Indicators
How VWAP compares to similar tools:
| Feature | VWAP | Moving Average | POC (Volume Profile) |
|---|---|---|---|
| What it shows | Volume-weighted avg price | Simple price average | Highest volume price |
| Weights by | Volume | Nothing (equal weight) | Volume at price |
| Resets | Each session | Never (rolling) | Per selected period |
| Best for | Intraday execution | Trend following | Key levels |
| Institutional use | Benchmark for fills | Limited | Market profile analysis |
| Dynamic/Static | Dynamic (updates) | Dynamic (updates) | Static (per period) |
VWAP Trading Strategies
Strategy 1: VWAP Trend Following
Use VWAP as a trend filter. In an uptrend, only take longs when price is above VWAP. In a downtrend, only take shorts when price is below VWAP. This keeps you aligned with the session's dominant direction.
Entry: Pullback to VWAP from above (bullish) or rally to VWAP from below (bearish). Stop: Other side of VWAP. Target: Previous high/low or band extension.
Strategy 2: VWAP Band Mean Reversion
When price touches the +2σ band, it's overbought relative to VWAP. Fade it with a short, targeting VWAP. When price touches -2σ band, it's oversold. Fade with a long, targeting VWAP.
This works best in ranging markets. In strong trends, the +2σ touch might just be the start of a trend extension. Always check for trend context.
Strategy 3: VWAP Reclaim/Loss
A VWAP reclaim (price crossing above VWAP after being below) signals bullish control. A VWAP loss (price crossing below after being above) signals bearish control. These crossovers often lead to continuation in the breakout direction.
Entry: On confirmed close above/below VWAP. Stop: Other side of VWAP. Target: ±1σ band or previous swing high/low.
Strategy 4: Opening Range + VWAP
Combine the opening range (first 15-30 minutes high/low) with VWAP. If price breaks above the opening range high and is above VWAP, strong bullish signal. If it breaks below opening range low and is below VWAP, strong bearish signal.
This gives you range breakout confirmation plus institutional trend alignment.
Anchored VWAP: The Power Tool
Anchored VWAP lets you start the calculation from any point you choose. While standard VWAP resets each session, anchored VWAP can run from a swing low, earnings announcement, or any significant event.
Common anchor points:
- Swing high/low: Shows average price since the trend started. Useful for pullback entries.
- Major news event: Shows average price since the news. If price is above, longs are in profit.
- Monthly/weekly open: Institutional accounts often benchmark to these periods.
- All-time high/low: Shows where long-term holders are positioned on average.
Anchored VWAP from swing lows acts as dynamic support in uptrends. Anchored VWAP from swing highs acts as dynamic resistance in downtrends. When price returns to anchored VWAP, traders who bought/sold at that anchor point are at breakeven—creating natural decision points.
How Institutions Use VWAP
Understanding institutional VWAP usage gives you an edge. Fund traders have execution benchmarks—often VWAP. If they need to buy 10,000 BTC, their job is to get an average price at or below VWAP.
What this means for you:
- Buying pressure below VWAP: Institutions buy dips aggressively when below VWAP because it improves their benchmark.
- Selling pressure above VWAP: Institutions sell rallies when above VWAP—they've already beaten benchmark.
- End-of-day rushes: Traders who missed VWAP may push hard near close to improve their average.
- TWAP competition: Some institutions use TWAP (Time Weighted) instead, spreading orders evenly. Know both.
This institutional behavior creates the self-fulfilling nature of VWAP support/resistance. It's not magic—it's how professional execution creates predictable order flow.
VWAP in 24/7 Crypto Markets
Crypto trades 24/7, so there's no natural session reset for VWAP. Different approaches:
- Daily VWAP (00:00 UTC reset): Most common. Resets at midnight UTC. Good for swing trades.
- Session-based VWAP: Use Asian (00:00-08:00 UTC), London (08:00-16:00 UTC), NY (14:00-22:00 UTC) sessions.
- Anchored VWAP: Start from significant events instead of time-based resets.
- Weekly VWAP: For longer-term positioning. Resets Monday 00:00 UTC.
For day trading crypto, use the daily VWAP. For swing trading, weekly VWAP or anchored VWAP from recent swing points works better. There's no single right answer—match your VWAP period to your trade duration.
Combining VWAP with Other Tools
VWAP is powerful alone but stronger with confluence:
- VWAP + Volume Profile: When VWAP aligns with POC, that level is extremely significant. Both volume-based tools pointing to the same price.
- VWAP + Order Flow: Fade -2σ band when you see bid absorption on the tape. The confluence of extended price + buying interest is high probability.
- VWAP + Market Structure: VWAP reclaim that also breaks a swing high (BOS) is a strong signal. Double confirmation.
- VWAP + Funding Rate: If price is below VWAP and funding is deeply negative, you have mean reversion setup + sentiment extreme.
Related reading: Volume Profile Trading and Order Flow Trading
Common VWAP Trading Mistakes
- Trading VWAP in isolation: VWAP alone isn't a signal. Combine with price action, volume, and context.
- Ignoring trend: Fading +2σ in a strong uptrend is fighting the trend. Respect direction.
- Early session trades: VWAP is unstable early in the session. Wait 30-60 minutes for reliable levels.
- Wrong timeframe: Using daily VWAP for scalps or intraday VWAP for swing trades. Match VWAP to trade duration.
- Not updating analysis: VWAP moves throughout the day. Your levels from the open may be stale by lunch.
Frequently Asked Questions
What is VWAP in trading?
VWAP (Volume Weighted Average Price) is the average price weighted by volume throughout the trading session. It shows the true average price that participants paid, factoring in the volume traded at each price. Institutions use VWAP as a benchmark for execution quality.
How is VWAP calculated?
VWAP = Cumulative(Price × Volume) / Cumulative(Volume). For each bar, multiply the typical price (high+low+close/3) by volume, sum all these values, then divide by total volume. Most platforms calculate this automatically.
Why do institutions use VWAP?
Institutions use VWAP as an execution benchmark. If they buy a large position at prices below VWAP, they got a "good" fill. Above VWAP is a "bad" fill. This creates natural buying below VWAP and selling above—making it a self-fulfilling support/resistance level.
What are VWAP bands?
VWAP bands are standard deviation envelopes around VWAP. The first band (±1σ) shows typical price range. The second band (±2σ) shows extreme extension. Price touching +2σ is overbought; -2σ is oversold. Mean reversion traders fade moves to the bands.
What is anchored VWAP?
Anchored VWAP lets you start the VWAP calculation from any point—a swing high, swing low, news event, or specific date. This shows the average price since that event, useful for tracking institutional positions from known entry points.
How do I trade with VWAP?
Common strategies: (1) Buy below VWAP in uptrends, sell above in downtrends, (2) Fade extreme extensions to ±2σ bands, (3) Use VWAP as stop placement reference, (4) Watch for VWAP reclaims/losses as trend signals.
What timeframe is best for VWAP?
VWAP resets each session, so it is primarily a day trading tool. For longer timeframes, use anchored VWAP from significant events. In 24/7 crypto markets, daily VWAP is common but weekly anchored VWAPs are also useful.
What is the difference between VWAP and moving average?
Moving averages weight all prices equally. VWAP weights by volume—prices with more volume count more. This makes VWAP reflect where real trading happened, not just price movement. VWAP is more responsive to actual market activity.