medium · 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 and predictably decreases every afternoon, making $VWAP$ appear far more stable to traders.
- Institutions largely stop referencing the $VWAP$ benchmark in the afternoon session, leading to noticeably less measurable volume impact.
- Exchange algorithms mechanically lock the $VWAP$ value in place after mid-day, giving traders a fixed reference price for the rest of the session.
- As the total volume accumulated throughout the day increases, new trades have a smaller proportional impact on the average calculation.
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