You often hear people talk about using the VWAP, or Volume Weighted Moving Average Price, as a trading tool, especially for day traders. Well VWAP is a measure of the average price a stock traded over the trading horizon (usually a day). This essentially shows what the average traders are paying for a particular stock. Often times, people try not to get into a position unless you can get in at the VWAP level in order to ensure you’re not paying too much. It also acts as an indicator, allowing the investors to understand whether the stock is trending or how it is trending throughout the day.
See the below chart of XLF from 4-21-09 for example.
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