How is the Anchored VWAP different from the session VWAP?

Understanding the Anchored VWAP Concept

1. The Anchored VWAP (Volume Weighted Average Price) is a variation of the traditional VWAP that allows traders to select a specific starting point for calculations, rather than being limited to a single trading session. This flexibility makes it highly adaptable for analyzing long-term trends across multiple days, weeks, or even months. By anchoring the calculation at a significant market event—such as a breakout, news announcement, or reversal point—traders gain insight into how price and volume have interacted since that pivotal moment.

2. Because the Anchored VWAP recalculates using all data from the chosen anchor point forward, it reflects cumulative buying and selling pressure over an extended period. This provides a dynamic benchmark that evolves with the market, offering context about whether current prices are favorable relative to historical volume activity. Traders often use this to identify potential support and resistance zones based on where price deviates from the anchored average.

3. One key advantage of the Anchored VWAP is its ability to remain relevant in both trending and ranging markets. In strong uptrends, price tends to stay above the anchored line, signaling sustained institutional buying. Conversely, in downtrends, price remains below, indicating consistent selling pressure. These behaviors help traders assess trend strength without relying solely on price action or momentum indicators.

Differences Between Session VWAP and Anchored VWAP

1. The Session VWAP resets at the beginning of each trading day or session, typically used by short-term traders and algorithms operating within intraday timeframes. It calculates the average price weighted by volume only during that specific session, making it ideal for evaluating execution efficiency and detecting intraday imbalances between buyers and sellers.

2. Unlike the Anchored VWAP, the Session VWAP does not carry over data from previous periods. This reset mechanism ensures neutrality but limits its usefulness for longer-term analysis. For instance, a sharp move late in one session may appear disconnected from early moves in the next, even if they are part of the same broader trend.

3. The most critical distinction lies in the reference point: Session VWAP uses a fixed, recurring start time, while Anchored VWAP uses a user-defined event-based start point. This means two traders analyzing the same asset might use different anchors—say, one starts at a major low, another at a peak—resulting in unique interpretations of value based on their chosen context.

4. Session VWAP is widely adopted in algorithmic trading strategies, especially those focused on minimizing market impact during large orders. Institutions often aim to execute trades close to the session’s VWAP to achieve fair pricing. In contrast, Anchored VWAP serves more strategic purposes, such as identifying macro-level accumulation or distribution phases.

Application in Cryptocurrency Markets

1. In the 24/7 nature of cryptocurrency trading, the concept of a “session” becomes ambiguous. Traditional Session VWAP, designed for markets with defined opening and closing times, struggles to provide meaningful signals when applied to crypto assets. There's no natural reset point like in equities or futures markets, which diminishes its reliability.

2. Anchored VWAP excels in this environment because it allows traders to set a meaningful starting point—such as the bottom of a major crash or the launch of a new blockchain upgrade—and track value evolution from there. For example, anchoring VWAP to Bitcoin’s price after the 2020 halving enables analysts to evaluate whether subsequent rallies represented justified growth or speculative excess relative to volume.

3. Many crypto traders combine Anchored VWAP with on-chain metrics, such as exchange inflows or holder behavior, to validate whether price movements are supported by real economic activity. When price trades significantly above the anchored average on declining volume, it may suggest weakening conviction among holders.

4. Automated trading bots in the crypto space increasingly incorporate Anchored VWAP logic to detect structural shifts. A crossover above a long-term anchored level after prolonged consolidation can trigger buy signals, assuming other conditions align. Similarly, breakdowns below can activate stop-loss mechanisms or short entries.

Frequently Asked Questions

What determines a good anchor point for Anchored VWAP?A reliable anchor point is typically a high-impact event visible in both price and volume, such as a macroeconomic announcement, exchange listing, or extreme volatility spike. Technical levels like multi-month lows or highs also serve well, especially when accompanied by elevated trading volume.

Can Session VWAP be used effectively in crypto trading?While possible, its utility is limited due to the absence of standardized trading sessions. Some traders artificially define sessions (e.g., UTC daily), but these lack the institutional order flow patterns seen in traditional markets, reducing the indicator’s accuracy.

Is Anchored VWAP prone to manipulation in low-volume markets?Yes, in thinly traded cryptocurrencies, large transactions can distort the average, creating misleading support or resistance signals. Combining it with volume filters or liquidity depth analysis helps mitigate this risk.