What Is AVWAP And How to Use Properly

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Anchored Volume Weighted Average Price (Anchored VWAP) is a technical analysis tool used by traders to determine the average price of a security, weighted by volume, from a specific starting point in time. Unlike the traditional VWAP, which resets at the start of each trading session, Anchored VWAP allows traders to select any point on a price chart as the starting anchor for the calculation. This flexibility makes it useful for analyzing the price action around significant events, such as earnings releases, breakouts, or market corrections.

### How Anchored VWAP is Calculated:
1. **Select an Anchor Point:** This could be a specific date, the start of a significant event, or any relevant point on the chart.
2. **Calculate VWAP from that Point:** From the anchor point, the VWAP is calculated by taking the sum of the product of the price and volume for each period, divided by the total volume, up to the current time.

### Formula:
\[ \text{Anchored VWAP} = \frac{\sum_{i=1}^{n} (P_i \times V_i)}{\sum_{i=1}^{n} V_i} \]
Where:
- \( P_i \) = price at the ith period
- \( V_i \) = volume at the ith period
- \( n \) = total number of periods since the anchor point

### Uses of Anchored VWAP:
- **Support and Resistance Levels:** It helps identify potential support or resistance levels based on the average price since the chosen anchor point.
- **Trend Analysis:** It provides insights into the market trend by showing the average price participants have paid since a significant event.
- **Entry and Exit Points:** Traders use it to find optimal entry or exit points by comparing the current price to the Anchored VWAP.

Anchored VWAP is widely used by both retail and institutional traders for making more informed trading decisions.