08/05/2021 |
$BABA Monthly Chart Case Study: Anchored VWAP
The average of a series of past actions is very often a good predictor of future outcomes, and this is what makes the Anchored VWAP a very powerful tool in a trader’s arsenal. The Anchored VWAP calculates the average price and amount of shares traded over a period and “weights” it with volume to give more insight into the direction of the price trend. It is human nature to see past performance as a clue into future outcomes and which is why price often reacts when nearing the AVWAP. Let’s take a look at how the Anchored VWAP can help you level the playing field on the $BABA Monthly Chart.
$BABA Monthly Chart
This is a monthly chart of BABA showing different levels using the anchored VWAP and volume by price. These are great tools on TrendSpider to visualize supply and demand on a chart, regardless of the timeframe. This chart shows why BABA may be nearing a short-term bottom below if the “volume shelf” and 2015 VWAP hold here. However, these levels can break down and are simply levels of interest to watch for below. Price action should always be the number one thing traders and investors pay attention to, regardless of resistance and support levels as these can always break to the upside or downside.
- This number represents the “anchor point” for both the anchored VWAP and volume by price. This point in 2015 was the low for BABA before the long-term trend reversed to the upside. You want to anchor from these points as this is when market participants switch from sellers to buyers as the trend materializes to the upside.
- This number represents the monthly candles respecting the 2015 anchored VWAP as a level of interest in which supply dries up. Supply dries up at these levels because this line represents the “average price paid” per share since the 2015 bottom. As market participants get back to breakeven, they don’t have any profits to sell, and supply dries up from there. Once you get an uptick in demand as participants start seeing a bottom form, this allows price to hit new highs as you have both supply drying up as well as demand increasing.
- This number represents the next level below on the anchored VWAP if the price continued to move down in August 2021. As mentioned above, this has been a level for swing lows to form as the uptrend has formed since 2015. This level below is right around $168 but will continue to move up higher as the price is still above this level. If the price breaks down through this VWAP and volume starts to take below this level, it will start to reverse to the downside and no longer have a positive slope like it has since the 2015 low.
- This number represents the volume shelf which is shown by the “Anchored volume by price” tool on TrendSpider. This “shelf” is a cluster of volume bars which show many shares holding at a specific level, in this case right around $170-$180. This shelf can be used very similarly to the anchored VWAP and is a great tool to use with anchored VWAPs to measure where breakeven levels are for different participants. The price can bounce at these “shelves” as supply dries up due to many holders back to breakeven with no more profit to sell, drying up supply on the market.
We hope that this case study helped to illustrate the relationship between how we define common sense based on an understanding of past events to predict future outcomes and why having the Anchored VWAP on your charts makes as much sense as well. Unlike the traditional VWAP indicator, the Anchored VWAP is adjustable to any event or point in time to provide more precise information into the asset’s price direction on your chart. Why not try it out with a free 7-day offer as a no-obligation window into the power of trading with the AVWAP.
