What VWAP actually computes
VWAP started life as an accounting number, not a chart signal: the average price paid per share since a fixed starting point, weighted by how many shares changed hands at each price. It answers "what did the average participant pay?" exactly. On charts it is usually asked a different question, "where will price turn?" This page is about the gap between the two.
The formula
From an anchor (usually the start of the session) to the current bar:
VWAP = sum(price x volume) / sum(volume)"Price" is usually the typical price (high + low + close) / 3, and both sums restart at the next anchor. There is no lookback length, no multiplier and no swing to choose. Bars where a lot traded count for more.
TradingView's built-in VWAP draws one band by default: the standard deviation of price around VWAP since the anchor, times 1 (bands at 2 and 3 are off until you turn them on). A second band mode, "Percentage", is a fixed-width envelope instead, so two charts can both say "VWAP bands" and draw different things.
Why it chases price in the morning and goes flat in the afternoon
If VWAP stands at W, built from volume V, and a new bar trades volume v at price p, VWAP moves by exactly:
change = v / (V + v) x (p - W)The first factor is the new bar's share of all volume since the anchor. Early in the session V is small, so each bar is a large share and VWAP follows price. Late in the session a bar that is 1% of the volume so far, trading two dollars away, moves VWAP two cents. A session VWAP gets harder to move as the day goes on, because the volume it divides by only grows; a very heavy bar near the close can still nudge it.
That matters when you read "touches". A nearly flat line that price oscillates around will be touched many times, whatever the volume weighting does. An afternoon chart that seems to "respect VWAP" is not, on its own, evidence that the line is a level.
Where it fails
- Late in the session it barely moves, so touches and crosses become likely by construction.
- "Above VWAP" describes a position; it is not a verdict on who is winning.
- Anchored VWAP is usually anchored with hindsight in the examples you see.
- It is only as good as the volume feed, and on some symbols that is not total traded size.
- It says nothing about the future. It is an average of what has already traded.
The Teardown Letter
The monthly Teardown Letter takes one popular indicator apart per issue in the same way: what it computes, what follows from the arithmetic, and where it misleads. Issues so far: RSI, MACD, order blocks, Fibonacci and Supertrend. New subscribers get every past issue.
Educational tools only—not investment advice. Trading involves substantial risk of loss.