Overview

The Anchored VWAP (Volume Weighted Average Price) is a powerful tool that extends the traditional VWAP calculation. Instead of starting at the beginning of a trading day, the Anchored VWAP lets you choose a specific starting point – an "anchor" – from which to calculate the average price, weighted by volume. This makes it useful for identifying potential support and resistance levels based on significant events or price swings. The Anchored VWAP reversal playbook focuses on using this indicator to spot potential trend reversals.

When It Helps

This approach is particularly helpful when:

• Identifying reactions to earnings announcements. Anchor the VWAP to the open of the day after the announcement.

• Analyzing price action after a major gap up or down. Anchor to the gap's origin.

• Determining if a pullback to a specific level is likely to hold. Anchor to a recent swing high or low.

• Confirming support or resistance after a news event.

The idea is that significant events create price levels that traders remember and react to. The Anchored VWAP helps visualize those levels.

How To Try

Most charting platforms, including TradingView, offer the Anchored VWAP. To use it:

1. Select the Anchored VWAP indicator.

2. Click on the chart at the point you want to anchor the calculation (e.g., the day of an earnings release).

3. Observe how price interacts with the resulting VWAP line. Look for bounces or rejections.

Key Settings

The primary setting is the anchor point. Experiment with different anchor points to see which ones align with price action. Some traders also adjust the standard deviation bands around the VWAP, but for reversal strategies, focusing on the VWAP line itself is often sufficient. The length of the calculation depends on the timeframe you're analyzing. For shorter-term trades, use more recent anchor points. For longer-term analysis, use older, more significant events.

Tips & Risks

• Discipline is key. Don't chase price. Wait for confirmation of a reversal near the Anchored VWAP.

• Consistency matters. Use the same criteria for selecting anchor points to maintain a consistent trading approach.

• Avoid FOMO. Not every touch of the Anchored VWAP will result in a reversal. Be prepared to exit if your initial assessment proves incorrect.

• Manage risk. Always use stop-loss orders to protect your capital. The Anchored VWAP is a tool, not a guarantee.

• Combine with other indicators. Use candlestick patterns, volume analysis, or other technical indicators to confirm potential reversals.

Quick Checklist

• Select a charting platform with Anchored VWAP.

• Identify significant price events to use as anchor points.

• Observe price action around the Anchored VWAP line.

• Use stop-loss orders to manage risk.

• Maintain discipline and avoid emotional trading.