easy · Order Flow Analysis market-mechanics-execution
During the first 30 minutes of the trading session, you observe VWAP moving rapidly with every new price tick. By 2:00 PM, however, VWAP barely moves even on large volume spikes.
What causes this change in behavior?
- Market volatility naturally decreases in the afternoon, making VWAP more stable.
- Institutions stop using VWAP benchmarks in the afternoon, leading to less volume impact.
- Exchange algorithms lock VWAP in place after mid-day to provide a stable reference for traders.
- As the total volume accumulated throughout the day increases, new trades have a smaller proportional impact on the average calculation.
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