VWAP in Share Market

VWAP In Share Market

VWAP is a key stock market trading benchmark. It shows the average price at which a certain stock has been traded over a certain amount of time based on the number of shares that have been traded. 

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VWAP Full Form

The full form of VWAP is Volume Weighted Average Price. It’s a widely used trading benchmark that gives traders a snapshot of the average price at which a security has traded throughout the day based on both volume and price. It’s particularly useful for institutional investors who wish to trade large amounts of certain security without disturbing the market price.

In the stock market, VWAP is significant because it provides insight into the market trend and liquidity. For example, if a security’s price is above the VWAP line, it’s considered a bullish signal, while if it’s below, it’s seen as bearish.

VWAP Formula

The VWAP formula is given by the sum of the volume of each transaction multiplied by the price of each transaction, divided by the total volume of all transactions. To break this down, the formula can be expressed as:

  1. Calculate the Typical Price for each period: (High + Low + Close) / 3
  2. Multiply the Typical Price by the Volume for that period: Typical Price * Volume
  3. Keep a running total of these values: Cumulative (Typical Price * Volume)
  4. Keep a running total of volume: Cumulative Volume
  5. Divide the value from step 3 by the value from step 4: VWAP = Cumulative (Typical Price * Volume) / Cumulative Volume

Consider a stock with the following 3 trades: Trade 1: Price Rs 100, Volume 1000 shares, Trade 2: Price Rs 101, Volume 1500 shares, and Trade 3: Price Rs 102, Volume 1800 shares. The VWAP is calculated as ((100*1000)+(101*1500)+(102*1800)) / (1000+1500+1800), which gives a VWAP of Rs 101.23.

VWAP Strategy

The VWAP strategy is a popular method among traders to identify the market trend and make informed trading decisions. The basic princi