What is the difference between VWAP & Anchored VWAP?

What is the difference between VWAP & Anchored VWAP?

VWAP & AVWAP are similar indicators where AVWAP is the extension of VWAP as the infection point is customizable. In other words, AVWAP is derived from the same formula as VWAP. Let us understand how these indicators work with a few examples.

 
Volume Weighted Average Price (VWAP)

VWAP is one of the popular technical indicators used to determine the average price of particular security throughout the day, based on both volume & price. It is primarily used in intraday timeframes by traders to assess market trends and identify trade setups. It is denoted by a line as shown in the image below:




Traders use the VWAP as a trend confirmation tool. Generally, if the price is trading below VWAP, it is said to be a Bearish Signal & if the price is trading above the VWAP, it is said to be a Bullish Signal. However, the major limitation of the indicator is that VWAP can only be used for Intraday Trading.


The Formula for calculating VWAP = Price * Volume

                            ∑Volume

∑ = Cumulative price or volume.


Anchored Volume Weighted Average Price (AVWAP)


Similar to VWAP, the AVWAP indicator is also used to determine the average price of securities, based on both volume & price. However, unlike VWAP, the starting point (Timeframe) is selected by the user, and the determination of trend is not restricted to Intraday. In other words, AVWAP is a technical indicator that puts together price, volume, and time. This triple-layered indicator can smooth price data and calculate the market sentiment and trend with time from a key inflection point. It can be used by short-term investors & swing traders. It is denoted by the green line as shown in the chart below:




For Instance, recently, on 1st February 2022, the budget session took place, a major trend-changing event in the market. So, the starting point is to be set from 1st February for determining the market trend after the event.

Go to ‘Indicators’ & type ‘Anchored VWAP’. The required indicator will be displayed. Click on it to plot.




Once the AVWAP is plotted, click on the ‘Settings’ and enter the required details such as Year, Month, Day, Hours, Minutes & Price as displayed in the image below:



The Anchored VWAP will be successfully plotted from 1st February as displayed in the image below:



As you can see, the current market price of HDFC bank is trading above the AVWAP line, which means the market is displaying Bullish trends post the event.

  

The AVWAP line has been acting as both Support & Resistance during this period, as highlighted below:




VWAP vs. AVWAP


Both VWAP & AVWAP can be plotted together in a single chart to help you assess market trends and identify trade setups.


From the details mentioned above, we understand that VWAP is used to ascertain the Intraday trends, whereas AVWAP is customizable & is not restricted to Intraday. However, plotting both together can help you to trade efficiently.




Points to be noted:


1. Multiple AVWAP lines can be plotted using different inflection points.



2. VWAP & AVWAP cannot be plotted for the Indices as there is no volume available.



3. When changing the period in the settings panel of the AVWAP indicator, ensure that the date you choose doesn’t fall on a holiday. If it does, the AVWAP indicator will not display the line as no trading would have happened on that day.



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