Anchored VWAP: The Trading Indicator That Mutual Fund Managers And FIIs Use
Do you really think you can make a lot of money with RSI and MACD? These are surely popular and useful indicators and I am not denying their credibility, the truth is only master traders like Vishvesh Chauhan or Pro RSI expert Bharat Jhunjhunwala make money. They have the discipline and rigour and they know how to use it effectively. However, a normal trader will only struggle.
There is a less popular indicator that is used by mutual fund managers and DIIs to buy and sell a stock.
And it’s not a secret that you can make money only when you’re with BIG BOYS in the market. You cannot make money when Prashant Jain of HDFC and LIC is selling a stock.
What is AVWAP Indicator?
AVWAP indicator is Anchored VWAP as it’s tied to a certain time and date. It acts as a hook to catch a fish.
This shows the Volume Weighted Average Price from that specific time and date. That’s like a hook.
A hook is used to fix at a certain point. And since it is a volume-weighted average price, stocks respect it. The price return to mean eventually.
- If the price of a stock goes below this AVWAP level, you are supposed to sell.
- If the price is above it, you need not worry and be with it.
It’s that simple. Another advantage is it can provide very accurate signals to long-term corrections and when they will end. It accurately predicted the bottom 2020 COVID crash.
For positional trading and adding to your position, it can be very reliable.
Let’s see some of the practical case studies of AVWAP in the case of Nifty 50. We draw an Anchored VWAP from 27/09/2008 when the bottom of Nifty was made. When we drew the AVWAP from this date, it clearly showed that 7450 was the lowest point and Nifty did not fall further. Here is the image:
The point to understand is if you have made a portfolio, you can be with the stock till it is above the AVWAP line, but sell this when it goes down.