ANCHORED VWAP - NATURE

The theory behind Anchored VWAP's formula resembles classical technical analysis, that is, prices have "memory" and "memory" of important price zones in the past. Old resistance can become new support when traders who miss an opportunity to buy when the price breaks up can buy back when the price hits that zone again, for example. Many price movements occur at a particular price zone, in the future when prices reach this zone, we can expect the same thing to repeat. Those who miss a buy when the price breaks a gap may buyback and cause the price to rise when the price finds that gap, and so on.

The Anchored VWAP is a line on the chart that is anchored to a price starting point on any timeframe. Many traders use the Anchored VWAP line to filter trends or trading signals. We will discuss how to use the Anchored VWAP in the next section.


ANCHORED VWAP - SPECIFICATIONS

The Anchored VWAP parameters can be calculated using the following starting points:
  • Highest volume
  • The highest peak
  • The lowest bottom
  • Nearest gap
  • Day
  • Week
  • Month
  • Precious
  • Year
The farther the starting point is from the present, the less the Anchored VWAP will react and change to the closest price movement because too much information is incorporated into its formula. Closer entry points (weeks to 1-month intervals on the D1 chart, days on the H4 chart, or several trading sessions on the H1 chart) will create more meaningful areas of support and resistance...

The Anchored VWAP is an indicator that combines price, volume of trading, and timing. These 3 layers of information make it smoother and much less noisy compared to other MA indicators.

ANCHORED VWAP - HOW TO USE IT

This is the important part you waited for. The Anchored VWAP can be used with all the functions of a normal MA, including:


  • Trend identification: based on slope and relative position with the price (above or below MA)
  • Identify important price zones: resistance in a downtrend and support in an uptrend
  • Identifying overbought/oversold when the price is too far from the Anchored VWAP
  • Crossing signals determine trend change
  • The important thing here is that you choose the right starting point on your trading timeframe. Don't choose too far when looking for short-term trading opportunities, nor too close when analyzing the mainstream trend.

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