Volume Weighted Average Price (VWAP)

The VWAP is calculated by dividing the dollar volume of a stock by the share volume over a given period of time. Simply put, the VWAP is the average price that each share was executed over the period of time being studied.

I use the ThinkOrSwim charting software and they do not have a study for VWAP, so I made one myself. Create a new user defined study and enter the following code:

plot Data = TotalSum(Volume * Close) / TotalSum(Volume);

I use VWAP charted on a 1-day chart with a 1-minute interval. To use properly in TOS charts, make sure you only include price action from Today. To set the correct time frame, click Style: Intraday: Today: 1-minute

The VWAP is considered to be a fair benchmark for comparison of the institutional trade desks ability to execute trades on behalf of the customer. If the brokerage purchases were made at a price less than VWAP then they did a good job for the customer. If the price paid was greater than the VWAP they may lose that customer for future transactional business. The daily VWAP is a number which changes as orders are transacted at varying prices throughout the day.

Because VWAP is such an important piece of data to the largest market participants, it is something that every market participant must be familiar with in order to stay on the correct side of the market.