Volume Trends (VWMA & VWAP)
Sep 2, 2018
The Volume Trends (VWMA & VWAP) tool provides a comprehensive view of market momentum by combining price action with volume data to help traders identify trend strength and potential reversals.
Usage
The indicator is primarily used to gauge the conviction behind price movements by comparing standard moving averages with volume-weighted ones.
- Trend Strength: When the VWMA is trending above the SMA, it suggests that price increases are being supported by higher volume, indicating a strong bullish trend. Conversely, a VWMA below the SMA indicates that price action lacks volume support or is driven by selling pressure.
- Divergence: Traders can look for instances where price makes new highs while the VWMA fails to follow, suggesting a weakening trend.
- Intraday Benchmarking: On intraday timeframes, the VWAP dots serve as a dynamic support/resistance level and a mean-reversion benchmark. Price trading above VWAP is typically considered bullish, while price below is bearish.
Details
The script calculates three distinct components:
- Simple Moving Average (SMA): A standard calculation of the average price over a specific period.
- Volume-Weighted Moving Average (VWMA): This calculation weights price based on volume, ensuring that periods with higher trading activity have a greater impact on the average.
- Volume-Weighted Average Price (VWAP): Calculated using price and volume from the start of the trading session (applicable to intraday charts).
The relationship between the SMA and VWMA is a classic technique for volume analysis. Because the VWMA reacts more heavily to high-volume bars, its position relative to the SMA reveals whether volume is confirming the current price trend.
Settings
- Source: Determines the price data used for the SMA and VWMA calculations (e.g., Close, Open, High, Low).
- Length: Sets the lookback period for both the SMA and VWMA calculations.
FAQ
How do I use the Volume Trends (VWMA & VWAP) indicator?
You can use it to identify if a trend is supported by volume by checking the relationship between the VWMA and SMA lines, and use the VWAP dots for intraday price context.
What do the different colors mean?
The SMA is plotted in the chart's foreground color, while the VWMA is blue. The VWAP dots change color based on whether the current price is above (green) or below (red) the volume-weighted average price.
Where can I access this tool?
You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.
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