VWAP BANDS

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The VWAP bands are like moving-average bands, but instead of being based on a simple or exponential moving average, they are calculated around the Volume Weighted Average Price (VWAP).

Here’s the breakdown:

1. VWAP (Volume Weighted Average Price)
VWAP is the average price a security has traded at throughout the day, weighted by volume.
Formula:

𝑉
𝑊
𝐴
𝑃
=
∑
(
𝑃
𝑟
𝑖
𝑐
𝑒
×
𝑉
𝑜
𝑙
𝑢
𝑚
𝑒
)
∑
𝑉
𝑜
𝑙
𝑢
𝑚
𝑒
VWAP=
∑Volume
∑(Price×Volume)
​

It tells you the “fair” intraday price based on where most trading happened.

2. VWAP Bands
VWAP bands are created by placing upper and lower boundaries around the VWAP line, usually using standard deviations or a fixed percentage distance.

Upper Band = VWAP + (k × standard deviation)

Lower Band = VWAP − (k × standard deviation)
Here, k is how many standard deviations you want (often 1 or 2).

3. Purpose
Shows potential overbought/oversold zones relative to the day's VWAP.

Works like Bollinger Bands, but tied to VWAP instead of a moving average.

Used by day traders and scalpers to spot extremes where price may revert toward VWAP.

4. Interpretation
Price near upper VWAP band → market extended above “fair” value, possible pullback.

Price near lower VWAP band → market extended below “fair” value, possible bounce.

Price crossing VWAP → potential change in short-term trend sentiment.

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