Anchored VWAP Trading Strategies
What is the anchored VWAP? How do we use it?
Where do we anchor it too? And how can we trade it?
What is anchored VWAP?
Anchored VWAP has generated a lot of excitement in the last few years. In particular, a trader called Brian Shannon has been quite vocal about how valuable it can be. And I’m inclined to agree…
So let’s take a quick look at what it’s all about and how we might use it in our trading.
In simple terms, it’s a way to use the VWAP tool (Volume weighted average price) but rather than have the VWAP calculation start at the beginning of the day or trading session, you can choose to anchor the VWAP to a point of your choosing.
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Anchoring VWAP to a swing high in USDJPY
Why is it useful?
Well, the benefit of anchoring the VWAP to a point is that you get to choose which point may be significant.
- Swing high or low
- Monthly high or low
- Price just prior to an impactful piece of data (e.g. after a surprise jobs number)
Anchoring VWAP to swing high and swing low – keeping price constrained for multiple days.
What you are trying to do is define when market participants have shifted sentiment.
Then by plotting a VWAP anchored to that point, you are getting a good idea of where the true average price is.
Not a moving average that’s just based on price, but an average based on all the transactions.
- Who is underwater?
- What price point might other traders consider value?
Anchored VWAP trading strategies
Here are a couple of ideas on how you could use anchored VWAP.
Use the Anchored VWAP as support or resistance. Just like you might use a traditional VWAP.
This is where you would look to buy or sell at the anchored VWAP if price retraced back and touched it.
Anchored EURUSD VWAP to swing high, acted as resistance during the downtrend.
This is where you would measure the move away from the VWAP and use that as a template to judge where price may stall in the future.
I covered more about the VWAP extension trade and VWAP in general here.
That’s it for now. You can go down the rabbit hole some more yourself if you think it’s interesting!
To use it just look for this button if you’re on Trading View:
Hit that and then choose your anchor point.
Have fun tinkering!