How does Volume Weighted Average Price (VWAP) work?

VWAP is an indicator used for analyzing price movements in financial markets, including cryptocurrencies. It shows the average price of an asset over a specific period, considering trading volume. This allows traders to understand at what price the main transactions occur. VWAP is calculated as the ratio of the total value of trades to the total volume over the chosen period, making it a useful tool for tracking the "fair" price. This indicator is used to minimize the impact of large orders and assists in making more informed trading decisions.