Studies: VWAP Volume-Weighted Average Price

VWAP is a trading acronym for Volume-Weighted Average Price, the ratio of the value traded to total volume traded over a particular time horizon (usually one day).  It is a measure of the average price traded at over the trading horizon.

The aim of using a VWAP trading target is to ensure that the trader executing the order does so in-line with volume on the market.  Ensign's VWAP is measured across a day from the evening session open through the day session close.   The VWAP can be shown with Standard Deviation bands based on the distance of the price from the VWAP.  The Multiplier parameter can be used to space the bands.

Formula:

The VWAP is calculated using the following formula:

where:

P_VWAP = Volume Weighted Average Price

P_j = price of trade j

Q_j = quantity of trade j

j = each individual trade that takes place over the defined period of time.

Upper Band = VWAP + Standard Deviation * multiplier
Lower Band = VWAP - Standard Deviation * multiplier

The following DYO was used to add the line labels shown on the previous chart example.