What is an Anchored VWAP?

Understanding the Concept of Anchored VWAP

Anchored VWAP, short for Anchored Volume Weighted Average Price, is a technical analysis tool used in cryptocurrency trading to assess the average price of an asset weighted by volume over a user-defined starting point. Unlike traditional VWAP, which resets at the beginning of each trading session, Anchored VWAP allows traders to set a custom anchor point—such as the start of a trend, a major price event, or a specific date—enabling a continuous evaluation of price relative to volume from that moment forward. This makes it especially useful in the 24/7 cryptocurrency markets, where sessions do not follow traditional market hours.

The calculation of Anchored VWAP involves summing the product of typical price and volume from the anchor point onward, then dividing by the total volume over that same period. The typical price is generally calculated as the average of high, low, and close prices for each candle. Because it incorporates volume, Anchored VWAP reflects periods of significant market participation, offering insight into whether current prices are trading at a premium or discount relative to historical volume-weighted levels.

How Anchored VWAP Differs from Standard VWAP

Standard VWAP operates on a time-based reset, recalculating from the beginning of each trading day. In contrast, Anchored VWAP does not reset automatically and instead persists across days, weeks, or even months depending on where the user sets the anchor. This is particularly relevant in the cryptocurrency space, where price action does not pause over weekends or holidays.

Another key difference lies in application. While standard VWAP is often used by institutional traders for execution strategies within a single session, Anchored VWAP serves as a dynamic support/resistance tool. For instance, if Bitcoin began a bullish trend on a specific date, a trader could anchor VWAP to that day. The resulting line would then show the average price paid by volume participants since the trend began. Deviations above or below this line may signal overbought or oversold conditions within the context of that trend.

Setting Up Anchored VWAP on Trading Platforms

Most advanced trading platforms such as TradingView, ThinkorSwim, and certain crypto-native charting tools support Anchored VWAP. To apply it:

• Open your preferred charting platform and load the cryptocurrency pair of interest
• Navigate to the 'Indicators' or 'Studies' section
• Search for 'Anchored VWAP' or 'AVWAP'
• Click to add the indicator to the chart
• Once added, locate the anchor tool (often represented by a pin or anchor icon)
• Click on the specific candle or date where you want the calculation to begin

Upon anchoring, the platform will compute the VWAP from that point forward. Some platforms allow customization, including the ability to display standard deviation bands around the Anchored VWAP, which can help identify volatility and potential reversal zones. Ensure that the chart’s time frame aligns with your analysis—using daily candles for long-term trends or 15-minute candles for intraday setups.

Interpreting Anchored VWAP in Crypto Trading

Traders use Anchored VWAP as a benchmark for trend validation and trade execution. When price remains above the Anchored VWAP line, it suggests that buyers are in control and that the average participant since the anchor point is profitable. Conversely, price trading below the line indicates that sellers dominate and that the average participant is in a losing position.

Volume spikes near the Anchored VWAP line often indicate strong reactions. For example, if Ethereum pulls back to test the Anchored VWAP after an upward move and bounces with high volume, this may confirm the level as support. Similarly, a breakdown below the line on high volume could signal a shift in market sentiment.

Some traders combine Anchored VWAP with other indicators such as RSI or MACD to filter signals. For instance, a retest of Anchored VWAP coinciding with an oversold RSI reading may present a high-probability long opportunity. The key is to view Anchored VWAP not in isolation but as part of a broader analytical framework.

Common Anchoring Strategies in Cryptocurrency Markets

Different traders use different criteria to set their anchor points, depending on their strategy. Common approaches include:

• Anchoring to the start of a major price move, such as the beginning of a bull run in Bitcoin
• Setting the anchor at a significant low after a market crash, like the March 2020 dip
• Using a key macroeconomic event, such as the launch of Bitcoin futures or ETF approval
• Choosing a round psychological price level where volume surged, like $10,000 for BTC

Each of these points represents a moment of meaningful market activity. By anchoring VWAP to such events, traders gain insight into how current price relates to the average cost basis of participants who entered at those critical junctures. For example, if BTC is trading at $60,000 and the Anchored VWAP from the $30,000 low is at $45,000, it indicates that the majority of volume since the low has occurred below current prices, suggesting strong underlying demand.

Customizing and Validating Anchored VWAP Signals

To enhance reliability, traders often apply filters to Anchored VWAP signals. One method involves requiring price to close beyond the VWAP line, not just intraday excursions. This reduces false breakouts caused by volatility. Another technique is to monitor volume divergence—when price moves away from Anchored VWAP but on declining volume, the move may lack conviction.

Some platforms allow coloring the VWAP line based on price position—green when price is above, red when below. This visual cue helps quickly assess market bias. Additionally, enabling volume profile alongside Anchored VWAP can reveal high-volume nodes that align with the VWAP, reinforcing its significance as support or resistance.

Backtesting is essential. Traders can manually set anchors on historical data to evaluate how price reacted in prior cycles. For instance, testing how Litecoin responded to its Anchored VWAP after the 2017 peak provides context for current behavior.

Frequently Asked Questions

Can Anchored VWAP be used on all cryptocurrency timeframes?Yes, Anchored VWAP is adaptable to any timeframe, from 1-minute charts to monthly views. However, the relevance of the anchor point must align with the timeframe. Short-term traders may anchor to intraday lows, while long-term investors might choose macroeconomic events.

Is Anchored VWAP effective in sideways markets?In ranging markets, Anchored VWAP may act as a central pivot, with price oscillating around it. While less effective for trend-following, it can still highlight areas of balance. Traders often combine it with horizontal support/resistance levels in such conditions.

How do I choose the best anchor point?The best anchor points coincide with high-volume events or structural market shifts, such as breakouts, major news, or macro reversals. Backtesting different points helps determine which provides the most consistent confluence with price action.

Does Anchored VWAP repaint?No, Anchored VWAP does not repaint once the anchor is set. It recalculates forward with new data but does not alter past values, making it a reliable tool for historical analysis and real-time decision-making.