Anchored Indicators 101

What is Anchoring?

Most indicators (such as moving averages or Bollinger Bands(R)) are typically calculated over all the candles on your chart. But some indicators (such as those with cumulative nature, like Volume Weighted Average Price) can make sense if they begin from particular candle.

This starting candle is called the Anchoring Point. You can place an anchoring point on any candle, but in general, traders tend to use local minimums and maximums, as well as recent gaps, or the start of a time period (week or month).

TrendSpider has two indicators that are anchored:

  • Anchored VWAP
  • Volume By Price.

Automated Anchoring saves your time

TrendSpider cannot replace your expertise with our algorithms, but it can automate some grunt work for you.

TrendSpider's Anchored VWAP can automatically anchor to special points (configured by you; i.e., to "Highest High"; when in non-continuouns mode, it anchors to the most recent point which is a fit), enabling you to flip through charts with ease. For example, you can set the indicator to anchor to the highest-high, and on every chart that you open, it will automatically identify the appropriate point. Automated anchoring is currently enabled for Anchorede VWAP only (read a nice post on our blog about that)

You can easily add different AVWAPs for the highest high, lowest low, recent gaps and other key levels and the charts will automatically update to provide you with a sophisticated support and resistance picture without the need to anchor each point manually on every chart.

Example of Auto AVWAPs on a Weekly IBM chart
Example of Auto AVWAPs on a Weekly IBM chart

In addition, you can use auto-anchored AVWAPs with the Strategy Backtester and Market Scanner to unlock a whole new world of possibilities when it comes to finding opportunities and evaluating technical strategies in real-time.

We support miltiple options for automated anchoring. Here they are:

  • Highest Volume Candle (uses Window parameter, see Note 1 below)
  • Highest High (uses Window parameter)
  • Lowest Low (uses Window parameter)
  • Most Recent Blue Doji Raindrop(tm)
  • Recent Gap (Anchors to points based on Gap Snake indicator)
  • Day to date (Since session open, today)
  • Week to date (Since open at start of week)
  • Month to date (Since the monthly open)
  • Quarter to date (Since the start of each quarter)
  • Year to date (Since January 1)

NOTE 1: Window: Window parameter might be slightly counter-intuitive: it serves as "The amount of candles a candle must dominate over in order to count as appropriate anchor point". So in case if you do Window=5, then you'll be essentially anchoring to Williams Fractal points. If you do Window=20, then candle A will be recognized as anchor point only in case if no candle from 10 candles to the left and 10 candles to the right from A dominates over A.

NOTE 2: Continuous mode: By default, automated anchored VWAP anchors to the most recent point which is finds to be a fit. However, you might enable the Continuous mode, which will make your AVWAP to anchor to every appropriate point. This is useful for manual analysis and backtesting (see below).

Backtesting with Anchored VWAP

There's no point to backtesting Anchored VWAPs that are manually set since it's curve-fit to each chart (and also won't give you a lot of information to analyze).

TrendSpider's automatically anchored VWAPs, however, open the door to interesting possibilities. For example, you can set the AVWAP to a first candle of a week and use it as a take-profit level. Or set the AVWAP to a recent gap and use as a stop-loss level. You can then use these levels as part of your trading strategies and backtest them in the Strategy Tester.

The "Continuous" checkbox enables the Anchored VWAP to identify all of the appropriate points on a chart and anchor to each of them on an ongoing basis. Just like the classic intraday VWAP "resets" when a new market session starts, the AVWAP in Continuous Mode will reset as soon as new anchoring point emerges.

Example of backtesting Auto AVWAP in Continuous mode

Example of backtesting Auto AVWAP in Continuous mode

Continuous Mode: We recommend backtesting AVWAPs in Continuous mode only.

IMPORTANT NOTE: Continuous mode is not available for Highest High, Lowest Low and Highest Volume anchoring points. That's because they use a concept of a "window" which is forward-looking, which makes it useless when backtesting. I.e., if you have AVWAP for Highest High and Window=20, then there's no chance for it to catch a maximum at candle X until at least 10 candless pass after this candle (so we could really tell that this candle X has the highest high indeed).

Scanning with Anchored VWAP

There's no point to scanning Anchored VWAPs that are manually set to a specific date since this date is guaranteed to be not that special for some symbols, and might make sense for others.

TrendSpider's automated anchoring ensures that Anchored VWAPs are set to meaningful points of interest across every chart that the Market Scanner is evaluating over time. For example, you can scan for prices breaking through AVWAPs that are anchored to recent gaps or for SMAs crossing down AVWAPs anchored to the highest high.

Continuous Mode: We recommend scanning with non-Continuous AVWAPS, as the opposite makes little to no sense.

Alerts with Anchored VWAP

For the purpose of alerts, you can use AVWAPs which are either anchored manually or automatically — both ways will work and will make sense. However, there's an important point about the auto-anchored AVWAPS: they can (and they are very likely to) change the anchor point over time.

For example, imagine that you set an alert on AVWAP anchored to Blue Raindrop. If your alerts lives long enough, then it might come to the point where a new Blue Raindrop has emerged, and this AVWAP will catch up for the new anchoring point. You will see the same if you open your chart for sure. When creating your alerts, you need to consider the fact that AVWAPs (except of those anchored manually for sure) do catch up for new anchoring points as they evolve.

Continuous Mode: We recommend creating your alerts on AVWAPs in Continuous mode, if possible.