How to use Anchored VWAP

An Anchored VWAP (Anchored - Volume weighted Average Price) lets you make up an idea on whether the control of the market is on side of bulls or bears. Like the traditional VWAP, it incorporates price and volume in a weighted average and can be used to identify areas of support and resistance on the chart. Just like in intraday setup, a traditional VWAP lets you gauge the control of bulls or bears on the price after the opening of the day, the Anchored VWAP (AVWAP) tells you the control of bulls or bears with respect to an important day in the past over daily or weekly chart. In other words, an AVWAP indicator ties VWAP calculations to a specific price bar chosen by the trader.

In a price reversal from the previous swing high or low, an A-VWAP tells us a general idea about the long-term (or short term based on the Anchor date) support or resistance or the price. In the attached TV screen, A-VWAP is applied over BankNifty futures (current contract in front). Here we can see that the price has taken reversals multiple times from the AVWAP.

Comment:

See the attached chart of BNF Fut. Anchored VWAP is drawn with anchor date 28th Jan 2021 which was the last swing low. The price took support initially at 23rd Feb, 1st March. It finally broke below AVWAP on 15th March, retraced the AVWAP line on 16th March, and continued the downward trend. We could conclude that the bear has taken control of the market. It then acted as resistance on 29th April and 18th May. Price finally broke above AVWAP on 21st May which started a bull phase of the BNF. What's interesting to see here is two AVWAPs with anchor dates 28th Jan and 16th Feb (previous swing low and high respectively) almost coincide near price level 34000 for last one or two months forming sort of zone of confluence. This must act as strong support for BNF. We must watch for this level in near future and trade accordingly. The next immediate level of support is 33500 although not so strong.