The Three Pillars of Technical Analysis: Price, Time, and Volume

The three driving factors in most technical analysis are Price, Time, and Volume.

Integrating these market elements provides a deeper understanding of supply and demand by allowing traders to determine objectively whether buyers or sellers control the trend.

This blog will uncover how the Anchored Volume Weighted Average Price (AVWAP) indicator combines all three variables into one intuitive line to show if buyers or sellers are moving the stock.

What is AVWAP: The Fusion of Price, Time, and Volume

Anchored Volume Weighted Average Price is a technical indicator that weighs price by volume, providing traders with an average transaction price for a stock over a selected timeframe.

AVWAP combines the three most important variables on a stock chart.

• Price – The value of a stock at a specific point in time.
• Time – The chosen period over which price and volume data are displayed.
• Volume – A measure of trading activity reflecting the intensity of buying and selling pressure.

This technical analysis tool is simply the weighted average price affected by the volume at any specified time.

By weighting price by volume, the AVWAP reflects the average buying price within the timeframe selected. High-volume trading significantly impacts AVWAP, while low-volume periods have a lesser effect.

The anchor is the starting point traders select to begin measuring price movement. By choosing a key event like a recent earnings gap, traders can track how the price behaves in relation to that moment.

Visually, AVWAP appears as a smooth line, similar to a moving average, helping traders determine whether the stock is trading above or below its volume-adjusted price.

How Does AVWAP Help Traders?

Anchored Volume Weighted Average Price simplifies trend following by combining price, time, and volume into a single clear indicator.

Interpreting this simple line on a chart empowers traders to asses whether buyers or sellers are in control.

Who’s in Control? Buyers or Sellers?

Anchored Volume Weighted Average Price helps us understand the connection between price and volume over any chosen timeframe.

Our job is to decipher the direction of the trend.

By adding an AVWAP to your chart, you can objectively determine the direction of the price movement within your selected time frame.

Where To Anchor VWAP?

Anchoring the Volume Weighted Average Price is where your personal trading style takes control. Depending on your timeframe and the type of trader you are determines where you should anchor the VWAP.

Position traders should anchor to all-time highs or lows, while swing traders will want to anchor AVWAP to a more recent swing high or low at a logical turn.

Day traders can anchor to an opening range on an intraday chart or at the weekly open to focus on a shorter timeframe.

Placing an anchor on an earnings report or gap will help trend followers, while anchoring to an IPO open will help traders determine the developing trend of a new issue.

Trading with Anchored VWAP Examples

IPO Breakout

After PLTR found support above its IPO AVWAP, it advanced by over 225% in under two months.

Earnings GAP Support

The 2022 Q4 earnings report for SMCI began one of the best runs of any stock for the next two years. We see the price resecting the AVWAP placed on the earnings reaction throughout the 1,650% advance.

Swing Low Support

In the middle of a powerful move in 2019, MSFT formed a W-Bottom base before continuing higher. When placing an AVWAP at the low of the base, we can see the price supported as it moved sideways for several months before continuing its advance.

Resistance from All-Time High

After CVNA peaked in 2021, we saw a series of lower highs. When you place an AVWAP at an all-time high, you will see how the price resisted during the entire downtrend.

How to Add AVWAP to Your Charts

Open the Drawing Tools and expand the Projection menu,

Select Anchored VWAP, then click on the bar where you want to anchor and Adjust the anchor point to explore different starting positions.

Experimenting with various anchor points will help you identify the most reliable setups for your trading strategy. Click and drag the starting point to any bar on the chart.

Screening with AVWAP

Deepvue offers powerful screening tools for AVWAP-based trading opportunities. Traders can:

• Find stocks trading above or below daily, weekly, monthly, or yearly VWAP.
• Use “% From VWAP” filters to locate stocks within a defined percentage of AVWAP.

This allows traders to pinpoint high-probability setups while managing risk effectively.

Key Takeaways

AVWAP is a versatile and powerful indicator that helps traders stay on the right side of the trend. By combining price, time, and volume, AVWAP provides insight into the balance between supply and demand.

Use AVWAP within your system to help identify if buyers or sellers control the price movement within your specified timeframe.

• If the price is above the AVWAP, buyers are in control
• If the price is below the AVWAP, sellers are in control

Anchor the VWAP to a logical price point that will help keep you on the right side of the trend.