The Problem With Regular VWAP on Earnings Days
If you’ve been trading for more than a week, you know what VWAP is. The Volume Weighted Average Price. It tells you the average price paid by all traders throughout the day, weighted by volume. It’s arguably the most important intraday indicator for active traders.
But VWAP has a blind spot, and it shows up every single earnings season.
Here’s the scenario. A stock closes at $50 on Tuesday. Tuesday night, they report earnings. Wednesday morning, it gaps up to $62 on massive pre-market volume. Your VWAP indicator starts calculating from Wednesday’s open, $62, and begins tracking the new day’s trading.
The problem? VWAP just ignored the most important event of the quarter. That $50 Tuesday close is a price that every institution who bought shares in the last month is anchored to. They don’t care about Wednesday’s VWAP. They care about whether they’re above or below their average cost basis, which was established before the gap.
Standard VWAP resets daily. It has amnesia. It wakes up every morning with no memory of what happened yesterday. That’s fine for normal days. It’s terrible for earnings gaps.
This is where Anchored VWAP changes the game.
What Anchored VWAP Actually Is
Standard VWAP calculates from the day’s open. Anchored VWAP lets you choose your own starting point. You click on any candle, any day, any bar, and VWAP calculates from there forward.
Think of it like GPS navigation. Standard VWAP always calculates your route from your home address. Anchored VWAP lets you drop a pin anywhere on the map and navigate from that point. Same algorithm, different starting location, completely different output.
When you anchor VWAP to the first candle of an earnings gap, you’re calculating the average price paid by everyone who traded after the earnings news was released. This is profoundly different from the daily VWAP, and institutions know it.
The Setup: Anchored VWAP From the Earnings Candle
Here’s exactly how to use this:
Step 1: Identify the Earnings Gap
After a company reports earnings, look for a significant gap, at least 5% from the previous close. The bigger the gap, the more useful Anchored VWAP becomes.
Step 2: Anchor VWAP to the First Post-Earnings Candle
On your charting platform (TradingView, DAS Trader, ThinkOrSwim), find the Anchored VWAP tool. Click on the first candle of the post-earnings trading session. This is usually the first pre-market candle after the earnings release, or the opening candle of the next regular session.
Step 3: Watch for the Reclaim or Rejection
In the days after earnings, the stock will trade around this Anchored VWAP line. Two things can happen:
Bullish: Stock pulls back to the Anchored VWAP from above and bounces. This means the average buyer since earnings is still profitable. They’re defending their cost basis. This is a buy signal, especially if it coincides with high volume on the bounce. Enter long on the bounce, stop loss below the Anchored VWAP.
Bearish: Stock tries to reclaim the Anchored VWAP from below and gets rejected. The average buyer since earnings is underwater. They’re selling into any bounce to get out at breakeven. This is a short signal, enter short on the rejection, stop above the Anchored VWAP.
It’s like a relationship with a business partner. The Anchored VWAP is the “breakeven” point of the partnership. If the business is above breakeven, everyone stays in. If it drops below, people start looking for the exit.
When to Use Standard VWAP vs. Anchored VWAP
| Situation | Use Standard VWAP | Use Anchored VWAP |
|---|---|---|
| Normal trading day | ✅ | Not needed |
| Post-earnings gap (day 1) | ✅ Both work | ✅ More useful |
| Post-earnings gap (day 2-5) | ❌ Resets daily, loses context | ✅ Maintains context |
| IPO first week | ❌ No history | ✅ Anchor to first trade |
| After a major news gap | ❌ Resets next day | ✅ Anchor to the gap |
| Scalping intraday | ✅ Primary tool | Not needed |
The rule of thumb: use standard VWAP for normal intraday trading. Use Anchored VWAP whenever a significant event created a gap that changed the stock’s narrative.
Standard VWAP is your everyday compass. Anchored VWAP is the special instrument you pull out when the terrain changes dramatically.
Real-World Example
Company XYZ reports earnings after the bell. Stock closes at $100. Earnings beat expectations. Stock gaps to $120 the next morning.
Day 1 post-earnings:
- Standard VWAP starts at $120, tracks the day normally
- Anchored VWAP from the earnings candle also starts near $120
- Both are similar on Day 1
Day 2:
- Standard VWAP resets. It starts fresh from Day 2’s open at $118
- Anchored VWAP is still tracking from the $120 gap. It now reads $119.50 (factoring in Day 1 and Day 2 volume)
- Stock pulls back to $119.50, bounces right off the Anchored VWAP
- Standard VWAP showed nothing special at $119.50
Day 3:
- Standard VWAP resets again. Useless for the earnings context.
- Anchored VWAP now reads $118.75. Stock tests it. Bounces again.
- You’ve now had TWO successful trades using a level that standard VWAP couldn’t even see.
This is the edge. Not a massive edge. Not a “quit your job” edge. But a consistent, repeatable informational advantage that compounds over hundreds of trades, and that’s what consistent trading discipline is built on.
Common Mistakes With Anchored VWAP
Anchoring to the wrong candle. If you anchor to the regular session open instead of the pre-market candle, you’ll miss all the pre-market volume, which is often the highest-conviction institutional volume after earnings. Anchor to the FIRST trade after the earnings release, even if that’s at 4:15 PM post-market.
Using it on low-volume stocks. VWAP, anchored or standard, is a volume-weighted indicator. If a stock trades 50,000 shares per day, VWAP is meaningless because there’s not enough volume to create a statistically significant average. Use it on stocks trading at least 1 million shares per day.
Treating it as a magic line. Anchored VWAP is a reference level, not a crystal ball. It works because institutions use it, but institutions also use many other tools. Combine it with Level 2 order flow, volume confirmation, and EMA crossovers for higher-probability setups.
The Bottom Line
Standard VWAP tells you what happened today. Anchored VWAP tells you what happened since the moment that mattered. For post-earnings gaps, that distinction is the difference between trading with context and trading blind.
Add Anchored VWAP to your post-earnings playbook. Anchor it to the earnings candle. Watch how price respects that level for 3-5 days after the report. You’ll start seeing opportunities that daily VWAP simply can’t show you.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always consult a qualified financial advisor before making trading decisions.