What it means
TWAP (Time-Weighted Average Price) is the simple average of prices over a specified period, equally weighted by time. Contrasts with VWAP (volume-weighted). Used as: (1) execution benchmark for institutional algorithmic orders that distribute trades evenly over a time window, (2) baseline reference for low-impact trading windows. Less common as a chart indicator than VWAP but standard in execution-algorithm benchmarking.
Why it matters
TWAP-targeted algorithmic orders are a major form of institutional execution. When a desk needs to fill a large order over a window without showing intent, they slice it into uniform time-distributed pieces — the resulting trade activity creates real flow pressure at TWAP levels in liquid instruments.
How to use it
Less actionable as a chart indicator than VWAP. Useful in algorithmic execution context for benchmarking your own order fills against a passive baseline. Some traders track session TWAP alongside VWAP — divergence between them signals volume concentration at specific times.
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