If you look at the screens of professional traders at massive Wall Street hedge funds or proprietary trading desks, you will rarely see an RSI, MACD, or a Stochastic oscillator.

You will, however, almost universally see one specific line overlaying their intraday charts: The VWAP.

Volume Weighted Average Price (VWAP) is arguably the single most important and respected algorithmic indicator in modern day-trading. In this guide, we will break down exactly what VWAP is and how you can use it to scalp the markets.

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What is VWAP?

Most retail traders are familiar with the Simple Moving Average (SMA). An SMA simply takes the closing prices of the last X candles and calculates the average.

The fatal flaw of the SMA is that it entirely ignores Volume. A candlestick that moved 100 pips on exactly 1 transaction has the exact same mathematical weight as a candlestick that moved 100 pips on 100,000 transactions.

VWAP fixes this. VWAP calculates the true average price of the asset, weighted proportionally by the actual trading volume at each price level. It tells you the absolute true "Fair Market Value" of an asset for that specific day.

Why Institutions Use It

Massive institutions have billions of dollars to deploy. If they simply hit "Buy" on the market, they would drive the price up so fast they would ruin their own average entry price.

Instead, algorithms are programmed to slowly buy the asset only when the current price is at or below the VWAP. They use the VWAP line as their benchmark for whether they are getting a "good deal" or overpaying.

3 Ways Day Traders Use VWAP

1. The Ultimate Trend Filter

VWAP is the ultimate intraday line in the sand. Many professional proprietary day traders use a very simple, non-negotiable bias rule:

If price is above the VWAP, you only look for Buy setups.
If price is below the VWAP, you only look for Sell setups.

This alone filters out thousands of fakeouts and forces you to trade with the institutional momentum.

2. VWAP Mean Reversion (Rubber Band Scalping)

Because VWAP represents fair institutional value, price cannot stay far away from it forever. Think of price and VWAP as being connected by a rubber band.

If major morning news rapidly pushes the price violently away from the VWAP line, institutional algorithms will view the asset as severely "overbought" or "oversold". They will stop buying, and high-frequency algorithms will step in to push the price aggressively back to the VWAP line.

Scalpers use standard deviations (VWAP Bands) to identify when price is stretched too far, and execute high-probability mean-reversion trades back to the central VWAP line.

3. VWAP Pullback Entries

If an asset is in a strong, grinding uptrend all day, you don't want to buy at the absolute top. You want to buy the dip.

But where exactly is the dip?

In a strong trend, the VWAP acts as a dynamic level of absolute support. Institutions will aggressively step in and defend the VWAP line. Wait for price to pull back, touch the VWAP, form a bullish rejection candlestick, and take the trade in the direction of the trend.

The Requirement for Execution

VWAP strategies are primarily effective on the 1-minute and 5-minute charts during the high-volume New York session.

Because you are trading incredibly fast timeframes, you absolutely cannot waste 30 seconds fumbling with lot size math in your head. The opportunity will vanish.

Keep the TradeHaven Risk Management Dashboard open on your second monitor. Plug in your 1% risk rule, enter your stop loss instantly, and fire the exact calculated lot size the second price rejects off the VWAP.

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