$ Pinescript Anchored VWAP (AVWAP)

What is Anchored VWAP (AVWAP)?

• ▸ Identify true support and resistance: AVWAP lines often act as dynamic support when price is above them and dynamic resistance when price is below them.
• ▸ Gauge market conviction: Price trading significantly above AVWAP indicates strong buying conviction from the anchor point; below indicates selling conviction.
• ▸ Assess 'smart money' positions: Traders can anchor VWAP to major institutional entry points to see if those players are currently profitable or under pressure.
• ▸ Confirm trends and reversals: A break and hold above/below an AVWAP can signal a new trend direction or continuation, while bounces can confirm existing trends.

Components and Calculation

1. Typical Price (TP): TP = (High + Low + Close) / 3
2. Cumulative TP * Volume: sum(TP * volume) from anchor bar to current bar
3. Cumulative Volume: sum(volume) from anchor bar to current bar
4. AVWAP: AVWAP = Cumulative TP * Volume / Cumulative Volume

Basic Anchored VWAP Implementation in Pinescript

//@version=5
indicator("My Anchored VWAP (AVWAP)", overlay=true, max_bars_back=5000)

// --- User Inputs for Anchor Point ---
anchorType = input.string("Time", title="Anchor Type", options=["Time", "Bar Index"])
anchorTime = input.time(timestamp("01 Jan 2024 09:15 +0530"), title="Anchor Date/Time (HH:MM IST)", tooltip="Set a specific date and time for the AVWAP to start from. Format: 'DD Mon YYYY HH:MM +HHMM'")
anchorBarOffset = input.int(200, title="Anchor Bars Back (from current bar)", minval=1, tooltip="Number of bars back from the current bar to set the anchor. Used if 'Anchor Type' is 'Bar Index'.")
resetOnSession = input.bool(false, title="Reset AVWAP on New Session?", tooltip="If true, AVWAP will reset calculation at the start of each new daily session, behaving like a traditional daily VWAP. If false, it continues from its anchor point.")

// --- Plotting Options ---
avwapColor = input.color(color.new(color.blue, 0), title="AVWAP Line Color")
avwapWidth = input.int(2, title="AVWAP Line Width", minval=1, maxval=4)

// --- Calculate Anchor Bar Index ---
var int anchorIdx = na

// Find the anchor bar index based on the chosen anchor type
if anchorType == "Time"
    varip bool anchorFound = false
    if not anchorFound
        for i = 0 to bar_index
            if time[i] >= anchorTime
                anchorIdx := bar_index[i]
                anchorFound := true
                break
else
    anchorIdx := bar_index - anchorBarOffset

if na(anchorIdx) or anchorIdx < 0
    anchorIdx := 0

// --- Calculate AVWAP ---
var float cumulative_tp_volume = 0.0
var float cumulative_volume = 0.0
var float avwap_value = na

var bool isNewSession = false
if resetOnSession
    isNewSession := ta.change(time("D"))
    if isNewSession
        cumulative_tp_volume := 0.0
        cumulative_volume := 0.0

float tp = (high + low + close) / 3.0

if bar_index >= anchorIdx
    cumulative_tp_volume := cumulative_tp_volume + (tp * volume)
    cumulative_volume := cumulative_volume + volume

    if cumulative_volume > 0
        avwap_value := cumulative_tp_volume / cumulative_volume
    else
        avwap_value := tp
else
    avwap_value := na
    cumulative_tp_volume := 0.0
    cumulative_volume := 0.0

// --- Plotting AVWAP ---
plot(avwap_value, title="AVWAP", color=avwapColor, linewidth=avwapWidth)

// Optional: Highlight the anchor point visually
anchorPlotColor = color.new(color.white, 20)
plotshape(bar_index == anchorIdx ? high : na, title="Anchor Point", location=location.belowbar, color=anchorPlotColor, style=shape.triangleup, size=size.small, text="Anchor")

// --- Simple Strategy Example (Conceptual) ---
strategy("AVWAP Strategy", overlay=true, initial_capital=10000, default_qty_type=strategy.percent_of_equity, default_qty_value=10)

if not na(avwap_value) and bar_index > anchorIdx

    longCondition = ta.crossover(close, avwap_value)
    shortCondition = ta.crossunder(close, avwap_value)

    if (longCondition)
        strategy.entry("Long AVWAP Cross", strategy.long)

    if (shortCondition)
        strategy.entry("Short AVWAP Cross", strategy.short)

    strategy.close("Long AVWAP Cross", when=shortCondition)
    strategy.close("Short AVWAP Cross", when=longCondition)

    closeAboveAVWAP = close > avwap_value and close[1] <= avwap_value[1]
    isNearAVWAP = math.abs(close - avwap_value) / close * 100 < 0.1
    
    longBounceCondition = low < avwap_value and close > avwap_value and closeAboveAVWAP
    shortBounceCondition = high > avwap_value and close < avwap_value and not closeAboveAVWAP

Optimizing Anchored VWAP (AVWAP) Performance

• ▸ Anchor Point Selection: This is the most critical aspect. The effectiveness of AVWAP heavily depends on anchoring it to a genuinely significant event. Common anchor points include:
• ▸ Confluence is Key: AVWAP is a powerful tool, but it's rarely used in isolation. Its signals gain significant strength when they align with other technical analysis tools:
• ▸ Trend Confirmation: Use AVWAP to confirm the trend from the anchor point. If price consistently stays above AVWAP, the uptrend from that anchor is strong. If below, the downtrend is strong.
• ▸ Fair Value Assessment: Consider price relative to AVWAP. If price is far above AVWAP, it might be overextended from the average price paid by recent participants; conversely if far below.
• ▸ Multiple AVWAPs: Some traders plot multiple AVWAPs anchored to different significant events (e.g., one from a recent swing low, another from a major earnings report). This creates a web of dynamic support/resistance.

Smart Money Compass

Common Anchored VWAP (AVWAP) Pitfalls

• ▸ Anchor Point Subjectivity: Choosing the 'correct' anchor point can be subjective and is crucial for the indicator's effectiveness. An ill-chosen anchor will result in irrelevant levels.
• ▸ Lagging Indicator: Like all moving averages, AVWAP is a lagging indicator. It reflects past price and volume action. It's best used for confirmation and context, not as a predictive signal on its own.
• ▸ False Signals/Whipsaws: In very choppy or range-bound markets, price can repeatedly cross AVWAP, leading to whipsaws and false signals if not combined with other filters or higher timeframe analysis.
• ▸ Over-Reliance: Using AVWAP as the sole decision-making tool without considering the broader market context, fundamental news, or other technical analysis can lead to poor trading decisions.
• ▸ Volume Data Quality: AVWAP relies heavily on accurate volume data. For assets with unreliable or low-quality volume data, AVWAP may be less effective.
• ▸ Misinterpretation in Strong Trends: In very strong, parabolic trends, price might stay far from AVWAP, making it less useful for immediate entry/exit signals but still valuable for assessing overall conviction.

Conclusion