One of the most seasoned professional traders employs an underutilized tool, anchored VWAP, to achieve precise entries and exits. This indicator offers a systematic approach to identifying trends, managing trades, and maximizing gains. If you’re ready to elevate your trading game, keep reading to learn how this tool can transform your strategy.
What Is Anchored VWAP?
Anchored VWAP is an abbreviation for Volume Weighted Average Price. Unlike other moving averages, it considers volume because its calculations reflect which group of buyers and sellers dominates a given price point.
Key Characteristics of Anchored VWAP
- Volume Integration: More-weighted prices are those that have higher trading volume.
- Customizable Starting Points: It measures from high-impact, market-moving events, such as quarterly earnings announcements or other significant market catalysts for a customized look at market movements.
Why Anchored VWAP Is Better Than Moving Averages
Contextual Relevance
An anchor-based computation with key events portrays the actual sentiment and market momentum.
Precision in Trend Analysis
Against rolling averages, it gives a better view of control in the market and helps traders identify inflection points.
How to Apply Anchored VWAP in Your Trading Plan
1. Identify Key Events
The first action is identifying important points, including:
- Earnings announcements
- Election results
- Major breakouts
These become anchors where you can determine if buyers or sellers are in control.
2. Breakouts and Pullbacks Application
Anchored VWAP is fantastic for determining:
- Support Levels: When price action goes above the anchored VWAP, it means strong buying activity is ongoing.
- Pullback Levels: Use the indicator to find places to re-enter into strong trends.
- Exit Signals: A daily close below the VWAP often signals a loss of momentum.
3. Customizing VWAP
For uptrending stocks, alter the source to compute from candle lows instead of the high-low-close range. This slight modification often works better with the level of support.
Case Studies: Anchored VWAP in Action
Earnings Breakouts
- Twilio (TWLO): Using an anchored VWAP from its earnings break provided an excellent example of how price regularly respected this level and gave the market multiple chances for re-entry.
- Oracle: The stock stayed over the anchored VWAP for months after the earnings date, which was a consistent trailing stop for swing trades.
Election Triggers
- Bitcoin: Following an election-specific breakout, Bitcoin respected the anchored VWAP as a supporting level, consolidating and then continuing back up.
- Tesla: On day one of a significant gap higher, Tesla traded below VWAP but ran right back up, giving a high-probability entry opportunity.
Application of Anchored VWAP in the Modern Market Conditions
The current market is marked by explosive moves that drive through earnings and macro catalysts. To trade in this environment, one needs to:
- Anchor VWAP during pivotal moments such as overnight election results or breakout levels.
- Use it to frame trades with clear risk-reward parameters.
Example: AP
This strong stock tested its anchored VWAP multiple times, allowing for potent entry points with minimal risk.
Monthly Performance Snapshot
| Date | Sell Put Strike | Buy Put Strike | Net Premium | SPX Closing Price | Result |
|---|---|---|---|---|---|
| Oct 4 | 5565 | 5555 | $350 | 5751 | $350 Profit |
| Oct 11 | 5570 | 5560 | $275 | 5815 | $275 Profit |
| Oct 25 | 5745 | 5735 | $300 | 5882 | $300 Profit |
Total October profit: $1625. Return on capital: 34.3%.
Tools and Platforms for Anchored VWAP
One of the most accessible platforms to implement anchored VWAP is TradingView:
- Navigate to the drawing tools.
- Select “Volume-Based Tools” and choose “Anchored VWAP.”
- Click on the desired candle to set your anchor.
For further customization, adjust settings to align VWAP with highs or lows for more precise support and resistance levels.
Enhancing Your Trading with SMB Capital
The great proprietary trading firm SMB Capital has honed the use of anchored VWAP by its very tools and methodologies. Using this indicator in practice:
- A trader better understands the market environment.
- The systematic approach of the firm has led to consistency.
Training Opportunities
SMB Capital provides intensive training for aggressive traders. With firm capital on tap, you can make huge profits without risking your own money. If you are committed to becoming a trader, then take advantage of their complimentary one-hour seminar to learn more.
Conclusion: The Anchored VWAP Advantage
Anchored VWAP is not just a tool; it is a strategy to:
- Frame trades
- Identify high-probability entry points
- Maintain discipline with systematic trailing stops
Including anchored VWAP in your trading will get you the accuracy you need to traverse complex markets. Whether you are a new trader or an experienced trader, this is a game-changer for your growth in trading account.