What is VWAP? (Volume Weighted Average Price)

March 14, 2021

The volume weighted average price (VWAP) will give you the average price based on the volume that was traded and gives traders an idea on the current trends and value of a stock.

This is extremely useful and is used by many institutions for entry and exit points for a stock. Since it is a common technical indicator for large institutions, it will likely be more helpful for stocks with large institutional ownership.

This technical indicator tool is often used for intraday charts (1 minute, 30 minutes, 1 hour, etc.) to determine a good entry or exit price and is represented by a single line on a chart, like a moving average (MA).

For example, let’s look at a stock with a 30-minute interval candlestick chart.

what is VWAP

 

In this case, the black line is the volume weighted average price.

We chose Apple (AAPL) for this example because it has high institutional ownership, which makes for an ideal candidate to use the VWAP.

If we check out the stock on finviz.com we can see that the institutional ownership is 59.80% at this time.

finviz institutional ownership

 

When an institutional trader is trying to find the best entry price for a stock, they are likely going to seek out a price that is below the VWAP, and in the same sense, might decide to short the stock when it is above the VWAP.

 

How to Calculate VWAP?

Let’s say for example that during the course of the sessions, 40 stocks are purchased at a price of $118.00, 10 were purchased at $119, 10 at $120, and another 10 at $121 as seen in the screenshot below.

VWAP example

If we are only taking price into account for an average then it would simply be $119.50 but since we are also including volume in the equation, we can tell that the volume weighted average price is going to be closer to $118 since there were more orders at that price than the other prices.

Simply multiple the volume and price of each order together and divide it by the volume total to come up with the VWAP.

volume weighted average price

 

The simple equation to determine the VWAP (volume weighted average price) is as follows:

VWAP calculation

Keep in mind, that while this is an excellent technical indicator to call a good entry or exit point for a stock, it will be best used on a stock with high institutional ownership.

You will often find that the VWAP acts as a resistance or support for a price. While it is a common technical indicator for institutions, it should not be solely relied upon as a strategy for purchasing or selling stocks – it is only one tool and indicator that can assist with a good entry or exit point.

0 Comments

Submit a Comment

Your email address will not be published.

Is Your Business Being Found Online?

Laptop Metrics Colorado

Free Digital Marketing Report ($150 Value)

marketing module lineWant to know how your business stacks up against the competition?

Read more articles about Finance.

9 Building Blocks of the Business Model Canvas

The 9 Building Blocks for any Business Model are as follows:   1. Customer Segments 2. Value Propositions 3. Channels 4. Customer Relationships 5. Revenue Streams 6. Key Resources 7. Key Activities 8. Key Partnerships 9. Cost Structure I am going to discuss each...

Why Your Business Should Hire a Digital Marketing Agency

A digital marketing agency handles promotional and marketing campaigns that help a business attract more customers. Why should your business hire one? What benefits can you get from an external marketing team? In this article, we’ll talk about digital marketing...

Digitally Transforming Your Business Communications to Support Marketing and Growth

Digital transformation is reshaping the way we do business in many different ways. From the way we generate leads and approach the art and science of sales, to the way we communicate internally and externally, there is no denying that digital technologies beg the need...

Internet Marketing: What Is It & How It Can Build Your Brand

  The official birth date of the internet is widely considered to be January 1, 1983. Since then, we have grown accustomed to the web and its capabilities, spending more and more time in front of our computer screens. According to DataReportal’s Digital 2022...

Facebook Competitors: Do They Have a Chance?

It’s a death by a thousand cuts that Facebook faces, both now and in the future of social media experiences. That’s not to say that Facebook (now termed, Meta) is going to go away, just that it’s no longer the big bully on the block. There are scores of social media...

What Is Trust Flow SEO?

First, let’s see what trust flow means for websites – Trust flow is a measure of the quality and trustworthiness of a website, based on the number and quality of inbound links to the site.     A high trust flow indicates that the site is trusted by many...

What Do “Business Development Skills” Mean In a Resume?

Every business needs development, and we can see the development of a business in its marketing.     Marketing is not just about selling or advertising, it's about developing your business by creating relationships with your customers. It's about...

How Much Cornerstone Content Should You Have?

Cornerstone content is the foundation of your website or blog. It's the most important and comprehensive material that you have to offer, and it's what you build everything else around - including your social media strategy.     Cornerstone content is...

Read more articles about business.

9 Building Blocks of the Business Model Canvas

9 Building Blocks of the Business Model Canvas

The 9 Building Blocks for any Business Model are as follows:   1. Customer Segments 2. Value Propositions 3. Channels 4. Customer Relationships 5. Revenue Streams 6. Key Resources 7. Key Activities 8. Key Partnerships 9. Cost Structure I am going to discuss each...

5 Things to Consider Before Buying Stocks

5 Things to Consider Before Buying Stocks

  Building a successful business is one of the best ways to achieve financial freedom. Nonetheless, this does not mean that you should stop exploring other opportunities to boost your income. The options abound, and one that you might want to consider is...

15 Websites with Free Stock Images for Commercial Use

15 Websites with Free Stock Images for Commercial Use

Photography is an essential part of any design and finding the right commercial-use photos for free can be a challenge. Sure, you could find the standard stock photos of a person sitting in front of a computer or business professionals smiling in a conference room,...

How TikTok Is Changing The Way Businesses Advertise

How TikTok Is Changing The Way Businesses Advertise

  From old-fashioned word-of-mouth advertising, social networks have improved how businesses publicize their brands. There is a new world of digital marketing on Instagram, Facebook, YouTube, TikTok, etc. According to research, TikTok records over I 000,000,000+...

Understanding of Linux device driver development

Understanding of Linux device driver development

The creation of Linux device drivers is a highly demanded service provided by numerous IT companies. What is Linux? What are the functions of drivers in Linux-based solutions? How to develop these drivers? Find the answers in our article.     About Linux...

Share This