Volume weighted average price (VWAP) is calculated by adding the Rupee amount traded for every transaction and dividing this by the total shares shares traded for that particular day. Rupee amount is calculated as price multiplied by the number of shares traded. Formula is as below:

VWAP  = Sum of (number of shares bought * price at which share bought)  /  Total shares bought

Average price calculated using VWAP is not just based on closing price of the stock and factors in the volume of transactions at a specific price point as well. 

VWAP is used as reference point to understand the price at which the security should be bought or sold. It is good to buy a security when it is trading below the VWAP. Similarly it is smart to sell the security when it is trading above the VWAP.