volume indicator
Volume Weighted Average Price (VWAP)
VWAP is the average price weighted by volume over a given period (typically intraday). It represents the fair value benchmark that institutions use to evaluate execution quality.
Formula
VWAP = Σ(Typical Price × Volume) / Σ(Volume) where Typical Price = (High + Low + Close) / 3 (typically reset at the start of each trading day)
Common strategies
- Mean reversion: Price reverting toward VWAP from above (sell) or below (buy) — VWAP acts as a magnetic anchor.
- Trend filter: Price above VWAP is bullish intraday; price below VWAP is bearish. Trade in the direction of VWAP.
- Institutional benchmark: Buy when price is below VWAP (good execution); sell when above VWAP.
How CommonQuant uses it
CommonQuant pre-calculates intraday VWAP on all timeframes. DSL strategies can reference vwap() to build mean-reversion and intraday trend-following logic.
Frequently asked questions
Is VWAP only for intraday trading?
Standard VWAP resets daily and is primarily an intraday tool. However, rolling or anchored VWAP (reset at a specific event) can be used on longer timeframes.
Why is VWAP important?
VWAP is the benchmark institutional traders use to measure execution quality. Trading around VWAP helps align with the "fair value" that large players reference.