VWAP and its bands: the institutions' average price

VWAP (volume weighted average price) is the session's average price, weighted by the volume traded at each price. In practice, it is the average price paid by all participants since the open. Unlike a moving average, which ignores volume, VWAP answers the only question that matters to an institution: at what price did the market really trade today?

That is why it is so widely followed. Many institutional desks are judged on their ability to buy below VWAP and sell above it. Execution algorithms refer to it. VWAP is not magic, but it is watched, and what the big players watch ends up mattering.