Anchored VWAP

Anchored VWAP

Introduction

The Anchored VWAP indicator ties VWAP calculations to a specific price bar chosen by the trader. Like the traditional VWAP, it incorporates price and volume in a weighted average and can be used to identify areas of support and resistance on the chart.

However, traditional VWAP calculations always start with the first bar of the day and end with the final bar of the day. In some situations, a chartist would prefer to analyze the VWAP line based on a less arbitrary starting point, and be able to extend that VWAP line beyond the end of the trading day.

Anchored VWAP allows you to specify the price bar where calculations begin, making it easy to see whether the bulls or bears have been in charge since a very specific point in time. The starting price bar that is chosen generally marks a shift in market psychology, such as a significant high or low, earnings, news, or other announcements. The Anchored VWAP line is charted using price and volume data from that significant event onward.

Calculation

The Anchored VWAP is calculated using the same formula as traditional VWAP. The only difference is in the bars that are included in the calculations.

  • With traditional VWAP, the calculation starts with the first bar of the day and ends with the last bar of the day. Because it only incorporates one trading day of data, traditional VWAP can only be used on intraday charts.
  • With Anchored VWAP, the chartist chooses the first bar to use in the calculation (“anchoring” the indicator to that bar), and the last bar is always the most recent bar available. Because of the more flexible starting and ending points, Anchored VWAP is not limited to intraday charts.

Please see our VWAP article in ChartSchool for more details on the standard formula used to calculate both VWAP and Anchored VWAP.

Interpretation

Like traditional VWAP, the Anchored VWAP overlay can be used to confirm trends and identify areas of support and resistance on the chart. The advantage of using Anchored VWAP is that you can set the starting point in order to include only relevant data on your chart.

Typically, the chartist chooses a particular event as the starting price bar for the overlay: a significant high or low, an earnings announcement, a gap, etc. These events generally signal a change in market psychology, and the price action prior to that change should be excluded from the calculations since it doesn't reflect the same market psychology.

For example, in the TSLA chart below, the VWAP line (in blue) is based on the opening bar, while the Anchored VWAP line (in red) is set at the low of the morning. The blue VWAP line includes data for the sharp increase in the first 20 minutes of trading, as well as the large drop to the low of the day, making for a VWAP line that doesn't reflect the price action at midday. The red Anchored VWAP line includes only data since reaching the low, and more accurately reflects the midday market psychology.

Multiple Anchored VWAP lines can be used on a single chart, each anchored at a different starting point. Where multiple Anchored VWAP lines converge, that can indicate an especially strong area of support or resistance.

Conclusion

Anchored VWAP provides all the same benefits of traditional VWAP in defining support and resistance levels, with the added advantage that you can pinpoint the exact timeframe to study. Starting VWAP calculations at the time of a significant turning point allows you to exclude price action that was driven by a different market psychology.

As with all technical indicators, traders should use the Anchored VWAP overlay in conjunction with other indicators and analysis techniques.

Charting with the Anchored VWAP Overlay

This overlay can be added from the Chart Settings panel for your StockChartsACP chart.

When you add Anchored VWAP to your chart, a starting date and time will be chosen for you, but this can easily be adjusted to meet your technical analysis needs. The Anchor Date and Anchor Time fields can be edited manually, but StockCharts provides a much quicker way to update these values: simply hover over the chart, position the crosshairs on the bar where you want to start your Anchored VWAP overlay, and click on that bar to set the new Anchor Date and Anchor Time.