VWAP vs. Anchored VWAP: Understanding the Key Differences

Volume Weighted Average Price (VWAP) and Anchored VWAP (AVWAP) are two important technical indicators used by traders to analyze price trends, measure market sentiment, and identify potential entry and exit points. When discussing VWAP vs. Anchored VWAP, both indicators help in understanding fair value pricing, although they have distinct applications in trading.

In this article, we will explore how VWAP and Anchored VWAP work, their key differences, and when to use each one effectively.

1. What is VWAP (Volume Weighted Average Price)?

VWAP is a trading benchmark that calculates the average price of a security based on both price and volume over a specific period (usually a single trading day). It helps traders determine whether the current price is trading above or below the average value for the day.

Formula for VWAP:

VWAP=∑(Price×Volume)∑VolumeVWAP = \frac{\sum (Price \times Volume)}{\sum Volume}VWAP=∑Volume∑(Price×Volume)​

How Traders Use VWAP:

✔ Above VWAP → Bullish sentiment (Buy signal)
✔ Below VWAP → Bearish sentiment (Sell signal)
✔ Institutional traders use VWAP to execute large orders without disturbing the market.

2. What is Anchored VWAP (AVWAP)?

Anchored VWAP is a variation of VWAP that allows traders to set a specific starting point (anchor) for calculation. Instead of resetting daily like VWAP, AVWAP is anchored to a significant event, such as:

✔ Earnings reports
✔ Major price breakouts
✔ Market tops or bottoms
✔ Economic news events

How Traders Use Anchored VWAP:

📌 Tracks sentiment from a specific event – Shows how price behaves relative to the average cost since the anchor point.
📌 Dynamic support/resistance levels – Helps identify key levels where institutional traders may be active.
📌 Better for swing and position trading – Unlike VWAP, which resets daily, AVWAP provides long-term trend analysis.

3. Key Differences: VWAP vs. Anchored VWAP

4. When to Use VWAP vs. Anchored VWAP

✅ Use VWAP When:

✔ You are day trading and need an intraday benchmark.
✔ You want to compare the stock’s price to the daily fair value.
✔ Institutions are executing trades and you want to follow their footprints.

✅ Use Anchored VWAP When:

✔ You want to track price movement from a major event.
✔ You are swing trading or investing and need longer-term insights.
✔ You need dynamic support and resistance levels that adjust over time.

5. Example of VWAP vs. AVWAP in Trading

📌 VWAP Trade Example (Day Trading)

1. A stock opens at $50 and moves above VWAP.
2. Price pulls back to VWAP, confirming support.
3. A trader enters a long position near VWAP with a stop-loss below it.
4. Price moves higher, allowing the trader to take profits.

📌 AVWAP Trade Example (Swing Trading)

1. A stock makes a major breakout after an earnings report.
2. The trader anchors AVWAP to the earnings date to track long-term sentiment.
3. Price pulls back to AVWAP, showing strong support.
4. A trader enters a buy trade and holds for a longer-term trend move.

6. Final Thoughts

Both VWAP and Anchored VWAP are valuable tools for traders, but they serve different purposes.

📌 Use VWAP for short-term intraday trading and institutional activity tracking.
📌 Use Anchored VWAP for longer-term trend analysis and significant event tracking.