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06/08/2021 |

$SPY Daily Chart Case Study: Anchored VWAP, Volume by Price, and Raindrop® Charts

I $SPY with my little eye, where the most profitable supply and demand zones lie, using Anchored VWAP and Raindrop® Charts to visualize and confirm volume on the rise. Might be a good idea to remember that, as these two unique features found only on TrendSpider’s automated charting software platform can greatly improve your profit margins when understanding how they are used correctly.

In this week’s case study looking at the $SPY, we will examine how the Anchored VWAP (AVWAP) and Raindrop® Charts can be used to mitigate the risk of price breaking down on entry at S/R levels that do not represent strong supply/demand at that price.

$SPY Daily Chart

$SPY chart.

This is a daily chart of SPY looking back since the middle of April when this current broadening formation started, and that the price is still trading within now. This case study looks at using anchored VWAPs and volume by price “shelves” to see supply and demand zones on the chart. This also looks at price discrepancies between regular candle closes vs. Raindrop chart closes.

  1. This number shows where the broadening formation starts on SPY in mid-April. A broadening formation is a formation in which the resistance trendline is made up of higher highs but the support trendline is created from lower lows in price. This formation is also known as a megaphone pattern. This is also the point at which the anchored volume by price starts from which allows you to see the volume profile of the megaphone pattern.
  2. This number represents where the anchored volume-weighted average price (VWAP) starts from which ended up being a perfect area for price to bounce on June 4th. The anchored VWAP should be started from different places on the chart in which the “status quo” changed. In this case, this was the bottom (almost a perfect double bottom) before the price started to move up quickly to test recent highs in early May.
  3. This number shows the price respecting both the anchored VWAP as well as the point of control of the megaphone pattern. Remember, we are measuring the volume as a function of price at the start of the megaphone pattern and this “point of control” is the largest volume node (sticking out furthest to the left). This volume node is also surrounded by other volume nodes that are almost the same number of shares, creating a “shelf” for price to bounce at. The price can bounce here due to supply drying up as many shares are back to breakeven from having a slight profit before the drop (With no more profits, it is less likely holders will sell).
  4. This number shows a green raindrop (volume-weighted candle) forming on Thursday which is different from the red close that occurred on the same day. Anytime you have a red close but a green raindrop, it is important to pay more attention to the Raindrop color more than the close. In this case, this signaled a strong setup into Friday with a big “gap up and go” into the weekend.

So we hope that you can now grasp how using the Anchored VWAP to identify the highest supply/demand zones can help to set up the most profitable trades to avoid chop in low liquidity zones. To add, how also switching to Raindrop® Charts (which are only available on TrendSpider) is a great second confirmation tool to visualize whether the volume is building at the upper price range of the candle, revealing the higher probability of continuation in the direction of your trade. Try out all of these great tools for 7-Days free on TrendSpider and start to “Trade like they do…”