Volume, Momentum and Volatility weighted moving average

The Volume, Momentum and Volatility weighted moving average indicator provides a multi-factor trend-filtering solution that incorporates price momentum, volume intensity, and relative volatility into a single smoothed average. This tool is designed to filter out market noise and provide higher-conviction trend signals by weighting price action according to its underlying conviction and market activity.

Usage

The Usage section describes how the script can be used to identify trends and potential reversal points. Traders can utilize this indicator to distinguish between high-conviction moves and low-volume "noise" that often leads to false signals in standard moving averages.

• Trend Identification: When the VMV Weighted Moving Average is sloping upwards and colored green, it indicates a bullish trend supported by volume and momentum. Conversely, a downward-sloping red line indicates a bearish trend.
• Crossover Signals: The indicator plots both a fixed-period VMV average and a dynamically smoothed version. A crossover of the fixed-period line over the smoothed line can signal a bullish shift, while a cross under can signal a bearish shift.
• Noise Filtering: Because the script factors in volatility (RVI) and volume, the average reacts more slowly during periods of low activity and more responsively during high-conviction breakouts.
• Comparative Analysis: Users can toggle additional reference lines, such as a parameterless VWAP or VIDYA with dynamic lengths, to compare the VMV output against other sophisticated filtering methods.

Details

The script constructs its unique weighting mechanism through several distinct steps:

1. Factor Calculation: It calculates three primary factors:
   • Momentum: Based on the Chande Momentum Oscillator (CMO) applied to price.
   • Volume: Derived from a CMO calculation applied to volume data.
   • Volatility: Derived from the Relative Volatility Index (RVI).
2. Smoothing: Each factor is smoothed using an Exponential Moving Average (EMA) to ensure the resulting weights do not fluctuate erratically.
3. Coefficient Construction: A coefficient is built for each bar using the product of the volume, volatility, and momentum factors.
4. Weighting: These coefficients are applied within a loop to the source price over the specified period, creating an exponentially weighted average where bars with higher volume, momentum, and volatility carry more significant weight in the final calculation.
5. Dynamic Lengths: The script utilizes a correlation-based search to determine a "dynamic length," attempting to find the optimal lookback period that best fits the current price structure.

Settings

• Source: The price input used for all calculations (default is Close).
• MA Length: The primary lookback period used for the VMV calculation and the dynamic length smoothing.
• Parameterless SWMA (Display Group): Toggles the visibility of a Symmetrically Weighted Moving Average that adjusts without user-defined periods.
• Vidya Dyn_len (Display Group): Toggles the visibility of the Variable Index Dynamic Average (VIDYA) using a calculated dynamic length.
• Parameterless VWAP (Display Group): Toggles the visibility of a volume-weighted average price calculation that does not require a fixed lookback period.

FAQ

How do I interpret the colors of the VMV moving average? The line changes color based on its slope. A green line indicates the average is increasing (bullish momentum/sentiment), while a red line indicates the average is decreasing (bearish momentum/sentiment).

What makes this different from a standard EMA or WMA? Unlike a standard EMA that only considers price over time, this indicator weights the average based on whether the price movement was accompanied by high volume, strong momentum, and expanding volatility.

How can I access this indicator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.