VWAP and the Opening Range
Calculate VWAP bar by bar, define the opening range and its width in ATR, and plan a rule-based opening range breakout with stop, target and size.
What you will learn
- What VWAP is, how it is calculated and why it resets every day.
- How to read price relative to VWAP and its slope.
- How to define the opening range and judge its width with ATR.
- How to write a complete opening range breakout plan.
Explanation
VWAP
VWAP (volume-weighted average price) is the average price of all trading today, weighted by volume. It starts again at every session open. Large market participants often use VWAP as a benchmark: an execution algorithm may try to buy "at or below VWAP". This is why many traders watch it.
For each bar, first calculate the typical price:
Typical price = (high + low + close) ÷ 3
Then:
VWAP = Σ(typical price × volume) ÷ Σ(volume), summed from the first bar of the session to the current bar.
How to read it:
- Price above a rising VWAP: buyers have paid ever higher prices today; the intraday bias is up.
- Price below a falling VWAP: the intraday bias is down.
- Price crossing a flat VWAP many times: no clear control, often a range day (Lesson 7).
VWAP needs real traded volume. Shares and futures have exchange volume. Spot forex has no central exchange, so platforms show broker-specific tick volume; for CFDs, volume depends on the provider's data. A VWAP on such data is only an approximation. An anchored VWAP starts at a chosen bar (for example a news release) instead of the open.
The opening range
The opening range (OR) is the high and the low of the first N minutes of the session, often 5, 15 or 30 minutes. It summarises the first reaction to overnight information.
OR width = OR high − OR low, and OR width in ATR = OR width ÷ daily ATR
A narrow OR (for example below about 30–40% of daily ATR) leaves room for a larger move later in the day. A very wide OR means much of the normal daily range is already used, so breakout targets are less realistic. These thresholds are planning guides; test them on your own data.
Opening range breakout (ORB)
An opening range breakout is a setup that enters when price leaves the OR. A complete rule set needs:
- Filter: OR width within your limits; for a long trade, price above VWAP.
- Entry: a buy stop order a small buffer above the OR high (for shorts, a sell stop below the OR low).
- Stop: at the OR midpoint or the opposite side of the OR.
- Target: a fixed R multiple or the next level on your map.
- Cancel time: if no breakout happens by a set time, cancel the order.
Breakouts fail often. A failed breakout, where price leaves the OR and quickly returns inside, is itself useful information for the next lesson's setups.
Worked example
Hypothetical example: share DEF, 5-minute bars after the 9:00 open. Daily ATR €4.00. Risk budget €100. Commission €1.50 per order; spread €0.02 per share; taxes excluded.
| Bar | High | Low | Close | Volume | Typical price | VWAP after bar |
|---|---|---|---|---|---|---|
| 9:00 | 100.80 | 99.60 | 100.50 | 2,000 | 100.30 | 100.30 |
| 9:05 | 101.00 | 100.20 | 100.90 | 1,500 | 100.70 | 100.47 |
| 9:10 | 101.10 | 100.40 | 100.60 | 1,200 | 100.70 | 100.53 |
| 9:15 | 101.50 | 100.60 | 101.40 | 1,800 | 101.17 | 100.71 |
| 9:20 | 101.80 | 101.20 | 101.60 | 1,000 | 101.53 | 100.82 |
- Bar 1 typical price: (100.80 + 99.60 + 100.50) ÷ 3 = 100.30. VWAP = 100.30.
- After bar 2: (100.30 × 2,000 + 100.70 × 1,500) ÷ 3,500 = (200,600 + 151,050) ÷ 3,500 = 351,650 ÷ 3,500 = 100.47.
- After bar 3: (351,650 + 120,840) ÷ 4,700 = 472,490 ÷ 4,700 = 100.53. Bars 4 and 5 follow the same way.
- 15-minute OR (bars 1–3): high 101.10, low 99.60, width €1.50. Width in ATR: 1.50 ÷ 4.00 = 37.5%, acceptable.
- Entry: buy stop at 101.15 (OR high + €0.05). It is triggered in the 9:15 bar, with price above the rising VWAP.
- Stop: OR midpoint (101.10 + 99.60) ÷ 2 = 100.35. Risk per share: 101.15 − 100.35 = €0.80.
- Size: €100 ÷ €0.80 = 125 shares. Costs: 2 × €1.50 + 125 × €0.02 = €5.50 = 0.055R.
- Target 2R: 101.15 + 2 × 0.80 = €102.75.
Common mistake
Practice activity
On paper: three 5-minute bars. Bar 1: high 50.40, low 49.80, close 50.20, volume 3,000. Bar 2: high 50.60, low 50.00, close 50.50, volume 2,000. Bar 3: high 50.70, low 50.30, close 50.40, volume 1,000. Daily ATR €2.00. (a) Calculate VWAP after each bar. (b) Calculate the 15-minute OR, its width in ATR and its midpoint. (c) With an entry at 50.75 and a stop at the midpoint, how many shares fit a €75 risk budget?
Show solution
(a) Typical prices: 50.13, 50.37, 50.47. VWAP: 50.13; (150,400 + 100,733) ÷ 5,000 = 50.23; (251,133 + 50,467) ÷ 6,000 = 50.27.
(b) OR high 50.70, low 49.80, width €0.90 = 0.90 ÷ 2.00 = 45% of ATR (wide; the remaining room is smaller). Midpoint (50.70 + 49.80) ÷ 2 = 50.25.
(c) Risk per share 50.75 − 50.25 = €0.50; €75 ÷ €0.50 = 150 shares.
Limitations: real platforms calculate VWAP from every trade, not from three bars, so values differ slightly; stop orders can fill above the stop price in fast markets.
Key takeaways
- VWAP = Σ(typical price × volume) ÷ Σ(volume), reset at each open.
- The slope of VWAP and price's position relative to it give the intraday bias.
- Judge the opening range by its width in ATR before planning a breakout.
- An ORB plan needs a filter, entry, stop, target and cancel time.
Next step
In the next lesson, you will use VWAP and intraday structure to plan momentum and pullback setups.
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