VWAP stands for Volume Weight Average Price. VWAP is a trading benchmark used especially in pension plans. It is calculated by adding up the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day.

Staying above VWAP would indicate continued momentum bullish price action while a drop below VWAP would be the opposite. However, in the short-term, share price has a strong tendency to mean revert to VWAP like a magnet.

This is especially true for stocks that are running on no news and trading hours in the early afternoon. Ideally traders should use this to scan for over-extensions, wait for consolidation and play the mean reversion on indications of potential reversals.