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Is Anchored Volume Weighted Average Price (AVWAP) the holy grail of trading indicators? In this video, you're going to find out.
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⏱️ Video Chapters
0:00 Intro
1::12 VWAP explained
1:42 Calculating SMA & VWAP
3:27 Adding VWAP in TradingView
4:58 Adding AVWAP in TradingView
5:35 Comparing AVWAP & EMA
7:19 Backtesting AVWAP
9:22 My Thoughts on AVWAP
10:00 Outro
🏷️ Tags
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0:00
AV Whopper AV web however you want to
0:03
pronounce it is this indicator your
0:05
magic ticket to training profitability
0:07
well in today's video You're gonna find
0:09
out you're going to learn what eBay AV
0:12
web what AV web is or anchored V web and
0:17
whether or not it works you might say
0:18
Leo how are you going to determine
0:20
determine if it works well for those of
0:22
you who don't know me my name is Louis
0:23
smigiel I'm an algorithmic Trader where
0:26
I test things to see if it works in the
0:27
market right I've always heard hey yeah
0:29
this works in the market or this works
0:31
in the market and it's just like does it
0:33
really do I really want to put my money
0:35
behind whatever that dude said so no I
0:38
like to test things and I post
0:39
everything on GitHub so you can validate
0:41
my findings or tell me I'm an idiot and
0:44
here's where I went wrong so long story
0:46
short everything in this channel is data
0:47
backed and how I determined it is I did
0:50
something called a linear regression
0:51
against the forward returns but without
0:54
boring you to death if you're interested
0:55
in how to explain it on the other video
0:56
so in this video again you're going to
0:58
learn what it is and if it works let's
1:00
jump into what AV web is
1:04
now before we understand what AV web is
1:07
we have to have an intuitive
1:08
understanding of you know the Original
1:10
Gangster which is V web or volume
1:12
weighted average price because after all
1:14
anchored v-wap is just an anchored
1:16
volume weighted average price and once
1:18
you understand the difference between a
1:20
simple moving average and a volume
1:21
weighted one you can intuitively
1:24
understand what anchored V web is and
1:27
whether it should work and all of this
1:28
other fun stuff right you have that
1:30
concrete understanding and understanding
1:32
extremely important so how do we get
1:33
that understanding well I find the best
1:35
way is to do a simple example and
1:38
calculate this stuff right so what would
1:41
the simple moving average be of two bars
1:44
right let's just pretend this is 931 and
1:46
9 32 in the morning what would the
1:48
simple moving average be here well it
1:50
would be a hundred dollars and fifty
1:51
cents because it's the midpoint right so
1:53
let's just test that we add 100 and 101
1:56
divide by the number of bars that's two
1:59
so we now have a simple moving average
2:01
of a hundred dollars and fifty cents
2:04
so the difference between a v web and a
2:06
simple moving average is that V web says
2:09
you know what that's not a great uh
2:12
conceptual model of a moving average
2:15
because if a price has a thousand times
2:18
or ten times in this case as much volume
2:20
it should weigh more on the moving
2:22
average and in the short term I sort of
2:25
agree with that uh so we can take a look
2:28
and see exactly what our price times
2:31
volume is
2:33
and we can see that we have 10 times
2:35
more volume at price point two so what
2:37
do we think our vreps going to be well
2:39
it's going to be higher than our simple
2:41
moving average because the you know this
2:43
one here the 101 dollars had it 10 times
2:45
more volume
2:47
so it's going to be closer to 10.90 then
2:51
uh you know 100.50 if that makes sense
2:54
so let's calculate exactly what this
2:56
will be so we add these two and divide
2:59
this plus this
3:02
so we got a hundred dollars and ninety
3:05
one cents so that sort of makes sense in
3:08
my mind right so you have to understand
3:10
that all we're doing with this B web is
3:13
waiting the moving average by volume and
3:16
the more volume the more impact so now
3:18
that we have a conceptual understanding
3:20
of simple moving averages versus volume
3:23
weighted ones how do we add V web to our
3:26
charts now charting the v-wap is really
3:29
easy in trading view you can hit the
3:31
front slash or go to indicators metrics
3:34
and strategies and you just type volume
3:36
or just view app right volume weighted
3:39
average price for VIP will get you to
3:40
the same place and you'll see here that
3:43
we have this blue line this blue line is
3:45
your volume weighted average price the
3:48
green bands around it are are you know
3:50
just simply bands above and below v-wap
3:52
but essentially what we have to
3:54
understand is you know look at this
3:56
price chart of Nvidia we have a lot of
3:58
volume at the open which is pretty
4:00
typical and we can see that v-wap is
4:02
very response offensive and then over
4:04
time it starts getting less and less
4:06
responsive and one of the reasons for
4:08
that is that these further volume uh I'm
4:11
sorry further price bars have to contest
4:14
with all of the prior volume right so we
4:16
can see that you know bar two only needs
4:19
to you know it's only impacted by this
4:22
volume and this volume right when you
4:24
get down to here you have all of these
4:27
weights so this thing becomes less
4:28
responsive and is that something that
4:31
you really want to do right because if
4:32
you think about the market as a
4:33
discounting mechanism typically the most
4:37
recent or most latest price is the most
4:40
accurate one and that's one of the
4:42
challenges I have with v-wap and you'll
4:45
see this in a second is that it doesn't
4:47
it isn't very responsive so now that we
4:50
understand what V web is and how to
4:52
chart it it's an intraday indicator
4:54
let's take a look at this on the daily
4:57
chart of Nvidia where we will anchor
4:59
v-wap
5:01
so in order to get an anchored vrap you
5:04
go up to here where it says forecasting
5:06
and measurement tools you click on
5:08
anchored view app and let's select a
5:10
place to Anchor it I'm going to put it
5:11
down here even though the traditional
5:13
place would be here just so you can
5:15
understand what I'm trying to get at
5:17
from a
5:19
responsiveness perspective from this
5:21
indicator so we can see initially after
5:24
this earnings announcement you know
5:27
price moves up in a big way we see that
5:29
the v-wap is very responsive then over
5:32
time it starts to almost feel like it
5:34
flattens out well let me put on the
5:37
10-day EMA and you'll see exactly what I
5:39
mean so we see that the 10 period EMA is
5:42
slower right and then all of a sudden it
5:45
becomes more responsive and that's
5:46
because anchored v-wap again is
5:49
cumulative where it takes all of this
5:52
information
5:53
you know it incorporates all of that
5:56
ahead of time
5:57
if that makes sense so it has to
5:59
incorporate all of this where the EMA is
6:03
only incorporating the last 10 periods
6:06
so there is a potential to create a
6:08
volume weighted EMA or volume rated
6:11
simple moving average that is rolling
6:13
right because think about it intuitively
6:16
you know the stock market or any Market
6:18
is a discounting mechanism where the
6:21
latest price typically is the best price
6:22
so whenever there's an earnings
6:24
announcement like here right this is on
6:27
you know May and it's now August we have
6:30
tons of volume in here and essentially
6:33
this volume weights even more than some
6:36
of this volume over here even though
6:37
this price is two to three months later
6:39
and that's the big issue that I have is
6:41
that you if you're saying that there is
6:43
a uh some type of factor that's less
6:46
important than price in a market I feel
6:48
like
6:50
um you might be mistaken which is why I
6:52
think uh and from my research shows that
6:54
that v-wap on the intradays makes sense
6:57
but anchored view app especially over
6:59
long time periods uh does not so now
7:02
that you understand anchored V web you
7:04
know how to chart it you understand V
7:06
web and it's an intraday and you
7:07
understand intuitively how to calculate
7:09
it and the difference between the moving
7:11
averages and the anchored and unanchored
7:13
volume weighted approaches now it's time
7:16
to dig into the results and exactly how
7:18
I tested this now if you're really
7:20
interested in how I tested this I walked
7:22
through all of the code on my other
7:24
channel and you know something that I'm
7:25
interested in is that obviously I dig
7:27
into this on the analyzing Alpha YouTube
7:31
channel where I cover all the code how
7:34
in depth you would like me to go for
7:35
this I'd love for you to let me know and
7:38
going down to the results here we can
7:40
see we have the V web Alpha and the SMA
7:43
Alpha so essentially v-wap
7:47
performed a little bit better than the
7:49
simple moving average but neither were
7:51
statistically significant and now let's
7:54
look at the anchored v-wap result so we
7:56
can see here how I'm anchoring it is
7:58
that if there's a volume Spike where
8:00
it's three times the uh the value of the
8:03
20-day volume moving average that counts
8:05
as a volume Spike and that's where we
8:07
anchor and we anchor up to a maximum of
8:09
50 days or until the next Anchor Point
8:12
and essentially
8:14
and that's what all this data is then I
8:16
do the exact same thing you know comes
8:18
up with these equations where it
8:20
determines okay what is the alpha and
8:22
here are the results so for the anchored
8:25
v-wap Alpha it is you know zero zero
8:28
zero nine four for the anchored simple
8:32
moving average it is zero zero zero nine
8:35
eight seven
8:37
okay and for the simple moving average
8:40
uh you know 20 period moving these are
8:42
all 20 period moving averages it's
8:44
actually zero zero one so what it's
8:46
saying is a simple moving average
8:48
without anchoring perform better than
8:51
all of those
8:54
um with with the anchoring right and
8:57
then the p-values state that they're not
9:00
statistically significant you can
9:02
understand if anything's statistically
9:05
significant that is this basic it will
9:07
be getting arbitraged away but the point
9:09
remains that if anything these results
9:12
are saying that the AV web performs
9:15
worse than a simple moving average it
9:17
performs worse than an anchored simple
9:19
moving average right why is that I was
9:22
saying this earlier is it intuitively I
9:25
don't like the idea of anchored V web
9:28
v-wap on an intraday basis makes sense
9:30
anchored V web doesn't to me and the
9:34
results sort of play out that you know
9:36
you want your moving indicators or your
9:39
indicators to have the the data based on
9:42
the most recent price because well the
9:45
markets are discounting mechanism using
9:47
long anchored prices that have a lot of
9:51
volume early on in the in the tail so to
9:54
speak just doesn't intuitively make
9:56
sense right so I won't be using it you
9:59
might have a different you find
10:01
something else but as far as I'm
10:03
concerned the data is lining up with my
10:06
intuitive understanding I think the
10:08
anchored v-wap is not worth training so
10:12
hopefully you enjoyed this video uh this
10:14
is more of a different style for me it's
10:16
just more of an open conversation if you
10:18
like this video please hit the thumbs up
10:20
and let me know what you did if you
10:22
didn't like this video let me know there
10:24
too hopefully you found this informative
10:26
and stay tuned for the next video where
10:29
I talk about how an algorithmic Trader
10:32
might actually start trading Live on
10:35
YouTube so I'm guessing you can guess
10:37
who that'll be all right so thanks for
10:39
joining and I'll see you in the next one
10:40
bye
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