Anchored VWAP

The Anchored VWAP Indicator: A Dynamic Reference for Pivotal Market Events
This script implements a specialized and highly customizable trading tool known as an Anchored Volume-Weighted Average Price (VWAP). Its core innovation and primary utility lie not in a novel mathematical formula, but in its temporal flexibility. Unlike the standard VWAP, which resets at the fixed start of each trading day, this indicator allows the trader to manually define the precise moment from which the calculation begins. This transforms it from a generic daily benchmark into a powerful, event-specific dynamic support and resistance level.

What It Does and How It Works

The indicator plots a single, continuous line on the price chart. This line represents the average price paid for an asset over a specified period, weighted by trading volume, but crucially, starting from a user-chosen timestamp. The calculation follows this logic:

Anchor Point Definition: The user specifies a "Start Time" (e.g., "2024-05-22 11:45:00"). This is the anchor—the moment deemed significant for a new market phase.

Initialization: On the very first candle at or immediately after the anchor time, the indicator initializes its calculation. It uses the candle's high price and volume to set an initial value, establishing a starting point for the cumulative calculation.

Cumulative Calculation: For every subsequent candle, the script calculates the Typical Price (High + Low + Close) / 3 for that period. It then:

Adds (Typical Price * Volume) to a running cumulative total.

Adds the Volume to a running cumulative volume total.

VWAP Plotting: The anchored VWAP line for each candle is simply the cumulative total price-value divided by the cumulative total volume up to that point. The line is only plotted for the period on and after the user-defined anchor time.

How to Use It: The Strategic Application

The power of this tool is unlocked through strategic anchor point selection. It is not a standalone signal generator but a dynamic reference framework for price action. It belongs to the family of Price Action-Based, Event-Driven Analysis and Dynamic Support/Resistance methodologies. Traders use it to contextualize price movement relative to a key market "reset" event.

Common anchor points include:

Major Economic News Releases: Anchor at the exact time of a CPI, FOMC, or jobs report to see the fair-value price discovery after the news, filtering out prior, irrelevant noise.

Significant Technical Breaks: Anchor at the moment a price conclusively breaks a major trendline, a multi-month high/low, or a key chart pattern (like the neckline of a head and shoulders). The VWAP then acts as a dynamic gauge of momentum following the breakout.

Session or Shift Changes: For 24-hour markets, anchor at the open of a specific session (e.g., London Open, US Open) to analyze intra-session flow.

Instrument-Specific Events: Anchor at the start of a merger announcement, earnings call, or product launch.

Once anchored, traders interpret price interaction with the line:

Trend Validation: Price sustaining above a rising anchored VWAP (anchored at a breakout point) confirms bullish momentum. Conversely, holding below a falling VWAP confirms bearish momentum.

Dynamic Support/Resistance: In a trending move, pullbacks towards the anchored VWAP often find support (in uptrends) or resistance (in downtrends). This makes it a potential area for trend-continuation entries.

Mean Reversion & Exhaustion Signals: A sharp, high-volume move far away from the anchored VWAP may signal an overextended market, prompting watch for a reversion back to the mean (the VWAP line).

The Core Philosophy and Rationale

The underlying principle is that volume-confirmed price action following a defining event establishes a new, more relevant fair-value equilibrium. The standard daily VWAP includes all overnight or pre-event noise, which can distort the relevant average for the new market regime initiated by the event.

This anchored approach:

Filters Irrelevance: It isolates analysis to the market structure after the catalyst, providing a cleaner analytical canvas.

Respects Market Microstructure: By weighting price by volume, it acknowledges that high-volume price levels are more significant than low-volume spikes, creating a more robust and "traded" average.

Provides a Self-Adjusting Baseline: It creates a moving benchmark that evolves with the new trend, offering a continuous, objective measure of whether prices are becoming relatively "expensive" or "cheap" within the current move, not compared to the entire day.

In essence, this Anchored VWAP shifts the perspective from a fixed, time-based cycle (the trading day) to a flexible, event-based cycle. It empowers traders to draw a dynamic line in the sand at their chosen moment of structural shift, turning a simple average into a sophisticated gauge of post-event market sentiment and momentum.