TL;DR. VWAP Bands draw the volume-weighted average price since the session opened (or the regular-hours open, or the week's first session) with one band above and one below it, at a chosen number of volume-weighted standard deviations of price about the VWAP, or at a chosen percentage of it. A close at the outer band means price has stretched far from what the session paid on average; a return toward the VWAP is the stretch reverting.
What it measures
- Where the session's average buyer and seller stand. The middle line is the VWAP: the average price paid for every contract traded since the anchor, each bar weighted by its volume. Price above it means the session's buyers are in profit on average.
- How far price has strayed, in the spread of what traded. The deviation is the volume-weighted standard deviation of price about the VWAP since the anchor. It is narrow just after the open, when few prices have traded, and widens as the session ranges.
- One band pair you choose. The VWAP node draws three band pairs at fixed multipliers. VWAP Bands draw one pair at the multiplier you set, in standard deviations or in percent of the VWAP, so a rule reads exactly the band it trades.
Formula
Inputs in AlgoLift
| Setting | Default | Range | Notes |
|---|---|---|---|
| Anchor | Each session | Each session, Each regular-hours open, Each week | Where the VWAP restarts. Regular hours needs an instrument that has them (futures and stocks; crypto and forex have none, and the line stays empty). |
| Multiplier | 2 | 0.1 to 10 | How wide the bands are: standard deviations from the VWAP (1, 2 and 3 are the usual choices), or percent of the VWAP in percent mode. |
| Bands | Standard deviations | Standard deviations, Percent of the VWAP | What the multiplier counts. |
| Source | HLC3, the typical price | Close, Open, High, Low, HL2, HLC3, OHLC4 | Which price each bar's volume is weighed at. |
For bands from a date and time, or from N bars back, on a chart, add the Anchored VWAP Bands study from the Indicators dialog. It is a chart study only: in a backtest "N bars back" would count from the last bar of the data, a look-ahead, and a fixed date would leave every later month empty.
Outputs in AlgoLift
| Handle | Type | Plotted | Notes |
|---|---|---|---|
| Upper Band | Numeric | Always | The VWAP plus the multiplier times the deviation (or percent). Never below the middle line. |
| VWAP | Numeric | Always | The VWAP since the anchor, drawn dashed between the bands. |
| Lower Band | Numeric | Always | The VWAP minus the multiplier times the deviation (or percent). Never above the middle line. |
How to read it
- A close beyond a band: price has stretched further from the session's average than usual for this session. At 2 deviations that is uncommon; it is where mean-reversion traders look to fade.
- A close back inside a band: the stretch has stopped. Fading the move on the close back inside, rather than at the first touch, avoids standing in front of a breakout.
- Price riding a band: a trend day. Price holds near the upper band and the VWAP rises under it; fading every touch on such a day loses repeatedly.
- Narrow bands early in the session: few prices have traded since the open, so the deviation is small and the bands are tight. Touches in the first half hour mean less than touches later on.
Best in, worst in
Best in liquid intraday futures and stocks during regular hours, where most of the session's volume trades and the VWAP is a level that execution desks and day traders watch.
Worst in the first minutes after the anchor, when the deviation rests on a few bars, and on news-driven trend days, when the stretch keeps stretching. On thin overnight hours a single large print moves the VWAP; the regular-hours anchor leaves the overnight out of a fresh period's sums.
Three setups
1. Fade the lower band
Wire a Crossover of price crossing above the Lower Band (2 deviations) into a long entry, so it fires when a bar closes back inside the band, and exit with a Set Exit Condition when price closes above the VWAP output. The short side mirrors it on the Upper Band.
2. Breakout beyond the band
On a trend-following strategy, go long when a bar closes above the Upper Band at 1 deviation, through a Comparison of price greater than Upper Band, and only after 10:00 New York through a Time Window, so the narrow bands of the open do not trigger it.
3. Weekly value area
Set Anchor to Each week and Multiplier to 1. Read the week's VWAP and its one-deviation bands as the week's fair value: favour longs below the Lower Band and shorts above the Upper Band, with a Bracket Order stop beyond the 2-deviation level.
Common mistakes
- Fading every touch. A band touch is a stretch, not a reversal. Wait for the close back inside, or filter for a ranging day.
- Trading the open's bands. Just after the anchor the deviation is close to 0, so the bands sit on the VWAP. Give the session time to trade.
- Choosing the regular-hours anchor on an instrument without regular hours. On crypto and forex the line stays empty; use Each session.
- Tuning the multiplier finely. A rule that works at 2.1 and fails at 2.0 and 2.2 has found noise (overfitting in trading).
VWAP Bands show how far price has stretched from the average price paid since the session, regular-hours open or week began, in volume-weighted standard deviations or percent. They restart exactly where the VWAP node resets, so the chart and the backtest read the same lines.