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The Volume Weighted Average Price (VWAP) is one of the most widely used indicators by traders to analyse price behaviour in relation to volumes, offering a balanced view of the interaction between supply and demand over time.
However, a lesser-known but increasingly appreciated evolution of this indicator, due to its operational effectiveness, is the Anchored VWAP (AVWAP). This indicator allows the weighted average of prices to be calculated in relation to volumes by anchoring it to a specific point in time, such as a significant high or low, a breakout, or a fundamental event. This feature makes Anchored VWAP particularly useful for interpreting institutional behaviour, identifying areas of strategic interest and building robust strategies, both from a mean reversion and directional momentum perspective.
Unlike standard VWAP, which is reset daily, AVWAP can accompany traders over long or short time horizons, maintaining its relevance as long as the anchor point remains significant.
Like any indicator, Anchored VWAP is not a foolproof tool. Its effectiveness depends on the trader's ability to contextualise, test and integrate it into an approach that is consistent with their trading style. There are no magic formulas: what matters is knowing when a configuration presents a real statistical advantage and when, on the other hand, it is more prudent to stay out of the market.
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