Use AVWAP To See Who’s In Control

Use AVWAP To See Who's In Control

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.

Anchored Volume Weighted Average Price

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

The AVWAP is 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 simply the starting point. When using AVWAP, traders “anchor” the AVWAP to the first point they want to start interpreting the price movement.

The chart displays a single line tracking the price movement, affected by volume, that resembles a moving average.

How Does It Help?

AVWAP simplifies trend following by combining price, time, and volume into a single clear indicator.

  • Time Entries And Exits More Effectively
  • Accurately Identify Price Trends
  • Hold Winners Longer
  • Cut Losers Faster

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

Who's In Control

AVWAP helps us understand the connection between price and volume over any chosen timeframe.

Our job is to decipher the direction of the trend.

Price Above AVWAP
Buyers In Control

Price Below AVWAP
Sellers In Control

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

Use AVWAP To See Who's In Control
Use AVWAP To See Who's In Control

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 AVWAP.

Earnings Reactions

All-Time High

IPO Day

Gaps

Swing Low

Year To Date

Position traders should anchor AVWAP 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 use AVWAP to 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, and anchoring AVWAP to an IPO open will help traders determine the developing trend of a new issue.

Examples

IPO Breakout

Symbol: PLTR
Company:
Palantir Technologies
Year: 2020

Use AVWAP To See Who's In Control

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

Earnings GAP Support

Symbol: SMCI
Company:
Super Micro Computer
Year: 2023

Use AVWAP To See Who's In Control

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.

Supports From Swing Low

Symbol: MSFT
Company:
Microsoft
Year: 2019

Use AVWAP To See Who's In Control

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 ATH

Symbol: CVNA
Company:
Carvana Co.
Year: 2021-2022

Use AVWAP To See Who's In Control

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.

Adding AVWAP To Your Charts

Open the Drawing Tools and expand the Projection menu,

Use AVWAP To See Who's In Control

When you select Anchored VWAP, click on the bar you want to anchor to.

Experiment with placing the AVWAP at various locations to see what works best. Click and drag the starting point to any bar on the chart.

Screening For VWAP

Deepvue offers many ways to screen for VWAP in logical areas.

Use AVWAP To See Who's In Control

Screen for charts where the price is above or below daily, weekly, monthly, and yearly VWAP.

To reduce risk, use the “% From” screens to find stocks within a defined percentage of VWAP.

Key Takeaways

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.

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