How You Can Use Anchored VWAP on thinkorswim
The anchored VWAP on ThinkorSwim is an excellent indicator that can help you identify support and resistance levels on various timeframes. The anchored VWAP may also help traders identify trend reversals.
Key Takeaways
Anchored VWAP (Volume Weighted Average Price) is a technical analysis tool that is used to identify potential support and resistance levels in financial markets.
Anchored VWAP is calculated by taking the average price of a security, weighted by the volume traded at each price level over a specific time period, and is often used by traders to identify potential entry and exit points in the market.
What is Anchored VWAP
The anchored VWAP allows you to determine support and resistance levels starting from a specific time on the chart.
Therefore, the anchored VWAP is helpful for long-term and short-term trading strategies. Although the anchored VWAP is the most effective for swing trading, the regular VWAP is best for day trading.
VWAP vs. Anchored VWAP
The VWAP is primarily used for intraday trading, while the anchored VWAP allows you to use a similar indicator for longer-term trades.
VWAP
The VWAP stands for volume-weighted average price. It is a lagging indicator that tells which price the most volume of buys and sells occurred at for a trading day.
If you buy a stock while trading below the VWAP, you are paying a lower price than the average trader for that day, and vice versa.
Anchored VWAP
The anchored VWAP, on the other hand, is more of a trend indicator starting from a specific point that you can customize.
The developer, Brian Shannon, CMT, created the indicator to utilize the VWAP on a longer time frame since you can anchor it at significant points, such as the 52-week highs or lows of the price.
Anchored VWAP Strategies
The best way to use the anchored VWAP on ThinkorSwim is to pin the anchor price to a significant level on the daily chart. Let’s take a look at an example using Google stock.
Anchored VWAP Example Use
In the image below, the anchor point is plotted at the recent low on Google’s stock. The 52-week low is significant, making this anchored VWAP an excellent price level to use as support.
The next image below plots the anchor point to a recent high for Google’s stock price. Therefore, you can use this anchored VWAP as a resistance level.
When the stock price breaks above or below these anchored VWAP levels, it may signify a trend reversal and a support/resistance flip.
Anchored VWAP ThinkorSwim Custom Indicator
The anchored VWAP is not a default indicator on the ThinkorSwim trading platform, so you can use this custom indicator to add it to your platform.
Customizing the Anchored VWAP on ThinkorSwim
After adding the anchored VWAP to your ThinkorSwim platform, you can customize it by clicking on the gear icon in the studies tab.
You can customize the anchor date, the time, and other aesthetics, such as the line's color.
Other ThinkorSwim Indicators
The anchored VWAP is one of the many indicators available on ThinkorSwim. Other popular indicators include the volume profile, VWAP, Ichimoku cloud, and RSI.
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FAQ
Is there an anchored VWAP in ThinkOrSwim?
Yes, there is a custom anchored VWAP indicator for ThinkOrSwim that you can download for free. The anchored VWAP indicator allows you to plot the VWAP line from any date and time that you choose, which can help you identify support and resistance levels, trend reversals, and average price movements.
How do I set up anchored VWAP?
To set up anchored VWAP in ThinkOrSwim, you need to copy and paste the script code for the indicator into the Studies section of the platform. Once you have the indicator installed, you can add it to your chart and adjust the settings according to your preference. You can also add multiple copies of the indicator to plot different anchored VWAP lines from different dates and times.
What is anchored VWAP vs VWAP?
Anchored VWAP is a variation of the standard VWAP (volume-weighted average price) indicator that allows you to anchor the VWAP calculation to a specific date and time. This can help you capture the average price of a security over a given time period, rather than over the entire trading day. Anchored VWAP can be useful for analyzing price movements from significant events, such as earnings reports, news announcements, highs and lows, etc.
VWAP is a common indicator that calculates the average price of a security based on volume and price data. It is often used as a benchmark for traders and investors to measure their performance and execution quality. VWAP can also act as a dynamic support and resistance level, as well as an indicator of market sentiment and liquidity.
What is anchored VWAP and how do you use it?
Anchored VWAP is an indicator that plots the volume-weighted average price of a security from a specific date and time that you choose. It can help you identify support and resistance levels, trend reversals, and average price movements over a given time period. You can use anchored VWAP to analyze price action from significant events, such as earnings reports, news announcements, highs and lows, etc.
To use anchored VWAP, you need to select a date and time that you want to anchor the VWAP calculation to. This can be based on your own analysis or preference, or on some common criteria, such as:
The start of a new week, month, quarter, or year
The last earnings date
The last major news announcement
The last pivot high or low
The last trend change
Once you have selected the anchor point, you can plot the anchored VWAP line on your chart using an indicator tool. You can then use the anchored VWAP line as a reference point for your trading decisions. Some common ways to use anchored VWAP are:
To identify support and resistance levels: The anchored VWAP line can act as a dynamic support or resistance level, depending on whether the price is above or below it. If the price breaks above or below the anchored VWAP line, it can signal a potential trend reversal or continuation.
To measure price deviation: The anchored VWAP line can show you how far the price has deviated from its average over a given time period. If the price is too far above or below the anchored VWAP line, it can indicate an overbought or oversold condition, which may lead to a reversion to the mean.
To assess trade execution: The anchored VWAP line can help you evaluate your trade execution quality by comparing your entry and exit prices to the average price over a given time period. If your entry and exit prices are close to or better than the anchored VWAP line, it means you have executed your trades well. If your entry and exit prices are far away from or worse than the anchored VWAP line, it means you have executed your trades poorly.
How do you use Anchored VWAP for swing trading?
Anchored VWAP can be a useful tool for swing trading, as it can help you identify support and resistance levels, trend reversals, and average price movements over longer time periods. You can use anchored VWAP for swing trading by following these steps:
Select an anchor point that corresponds to a significant event or time frame for your swing trading strategy. For example, you can anchor the VWAP calculation to the start of a new month or quarter, the last earnings date, the last major news announcement, the last pivot high or low, etc.
Plot the anchored VWAP line on your chart using an indicator tool. You can also plot multiple anchored VWAP lines from different anchor points to get a more comprehensive view of the price action.
Use the anchored VWAP line as a reference point for your swing trading decisions. Some common ways to use anchored VWAP for swing trading are:
To identify support and resistance levels: The anchored VWAP line can act as a dynamic support or resistance level, depending on whether the price is above or below it. You can look for price reactions or breakouts around the anchored VWAP line to enter or exit your swing trades.
To measure price deviation: The anchored VWAP line can show you how far the price has deviated from its average over a given time period. You can use this information to gauge the strength or weakness of the trend, and to look for potential reversals or continuations. For example, if the price is too far above or below the anchored VWAP line, it can indicate an overbought or oversold condition, which may lead to a reversion to the mean. Conversely, if the price is close to or following the anchored VWAP line, it can indicate a strong or stable trend, which may lead to a trend continuation.
To assess trade execution: The anchored VWAP line can help you evaluate your trade execution quality by comparing your entry and exit prices to the average price over a given time period. You can use this information to optimize your risk-reward ratio and to improve your trading performance. For example, if your entry and exit prices are close to or better than the anchored VWAP line, it means you have executed your trades well. If your entry and exit prices are far away from or worse than the anchored VWAP line, it means you have executed your trades poorly.
How do you use Anchored VWAP for day trading?
Anchored VWAP can be a useful tool for day trading, as it can help you identify support and resistance levels, trend reversals, and average price movements over shorter time periods. You can use anchored VWAP for day trading by following these steps:
Select an anchor point that corresponds to a significant event or time frame for your day trading strategy. For example, you can anchor the VWAP calculation to the start of a new day or session, the opening or closing bell, the first or last hour of trading, a gap up or down, etc.
Plot the anchored VWAP line on your chart using an indicator tool. You can also plot multiple anchored VWAP lines from different anchor points to get a more comprehensive view of the intraday price action.
Use the anchored VWAP line as a reference point for your day trading decisions.
Who invented Anchored VWAP?
Anchored VWAP was invented by Brian Shannon, a well-known trader, analyst and author of Technical Analysis Using Multiple Timeframes. He developed this indicator as a way to capture the average price of a security over a specific time period, rather than over the entire trading day. He also coined the term “anchored” to describe this method of anchoring the VWAP calculation to a significant event or time frame.
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