Elastic Volume Weighted Moving Average with Trend and Envelopes

The Elastic Volume Weighted Moving Average with Trend and Envelopes indicator provides a volume-sensitive trend-following mechanism that adapts to market liquidity and price action to identify potential reversals and dynamic support or resistance zones.

Usage

The Usage section describes how the script can be used to identify market trends and volatility ranges. The indicator consists of three primary components: the core EVWMA line, a dynamic trendline, and optional envelopes.

• Trend Identification: Users can monitor the relationship between the EVWMA line (the primary blue line) and the Trendline. When the EVWMA crosses above the Trendline, the area between them is filled with green, signaling bullish momentum. Conversely, when the EVWMA crosses below the Trendline, the area is filled with red, signaling bearish momentum.
• Volatility Envelopes: By enabling the "Draw Envelope" setting, the script plots upper and lower bands based on the high and low price data processed through the EVWMA formula. These bands act as a channel, helping traders identify overextended price conditions or potential mean-reversion targets.
• Signal Execution: Crossings between the main average and the trendline can be used as triggers for trend-following entries. The "Lookback Periods" setting determines how reactive the trendline is to recent fluctuations in the EVWMA.

Details

The Elastic Volume Weighted Moving Average (EVWMA) differs from standard moving averages by incorporating volume into the decay factor of the calculation. It treats the total volume over a specified period as the "floating shares," allowing the average to adjust its speed based on market activity. During periods of high volume, the indicator becomes more "elastic" and reacts faster to price changes; during low volume, it remains more stable.

The trend component, based on logic by Shizaru, tracks the highest and lowest values of the EVWMA over a specific lookback window. This creates a trailing support/resistance level that only shifts when the EVWMA breaks through the previous period's extreme values. This combination was originally synthesized by Spreadburn, with the core EVWMA logic based on work by LazyBear.

Settings

• EVWMA Period Length: Determines the number of bars used to calculate the sum of volume (floating shares) and the base average.
• Lookback Periods: Sets the historical window used to calculate the highest highs and lowest lows for the trendline calculation.
• Draw Envelope: A toggle to display the upper (based on high prices) and lower (based on low prices) EVWMA bands.
• Draw Trend: A toggle to display the dynamic trendline used for momentum filtering and cloud filling.

FAQ

How does EVWMA differ from a standard Volume Weighted Moving Average (VWMA)? While a VWMA calculates a simple average weighted by volume over a fixed window, the EVWMA uses a recursive formula where the "elasticity" is determined by the ratio of current volume to the total volume sum (floating shares). This allows it to more accurately represent the average price paid by market participants over time.

What do the red and green clouds represent? The cloud is a visual representation of the trend. A green cloud indicates that the elastic average is trading above the calculated trend floor, suggesting an uptrend. A red cloud indicates the average is trading below the trend ceiling, suggesting a downtrend.

How can I access the Elastic Volume Weighted Moving Average with Trend and Envelopes? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.