What Is Volume Weighted Average Price?
VWAP (Volume Weighted Average Price) calculates the average price of an asset throughout a trading session, weighted by volume at each price level. It gives more weight to prices where more volume traded, making it a more accurate representation of the "true average price" than a simple average.
How Volume Weighted Average Price Works
VWAP is calculated cumulatively throughout the day: Sum of (Price × Volume) / Total Volume. Institutional traders use VWAP as a benchmark — executing below VWAP is considered a good buy, and above VWAP is considered a good sell. Standard deviation bands around VWAP (1, 2, and 3 standard deviations) create dynamic support and resistance levels.
Why It Matters for Traders
In crypto, anchored VWAP (starting from a significant event like a breakout, all-time high, or cycle low) is a powerful tool for identifying fair value. The VWAP from Bitcoin's last cycle low, for example, acts as a macro support level. Intraday traders use VWAP as the dividing line between bullish and bearish bias for the session.
