VWAP + Standard Deviation

The VWAP + Standard Deviation indicator provides a dynamic volume-weighted average price alongside two sets of standard deviation bands to help traders identify value areas and potential overextended market conditions.

Usage

The script is primarily used to determine the intraday trend and identify potential reversal or continuation points based on price deviation from the average.

• Trend Identification: When price is trading above the VWAP line, the intraday sentiment is generally considered bullish. Conversely, price trading below the VWAP suggests a bearish sentiment.
• Mean Reversion: Traders often look for price to return to the VWAP line after reaching the outer standard deviation bands. The first set of bands represents one standard deviation, while the second set represents two, often acting as dynamic support or resistance levels.
• Volatility Monitoring: The width between the bands expands and contracts based on market volatility, providing a visual representation of price dispersion relative to the volume-weighted average.

Details

This implementation calculates the Volume Weighted Average Price (VWAP) by accumulating the product of price and volume and dividing it by the cumulative volume since the start of the trading day. The standard deviation bands are calculated based on the distance of the VWAP value over the current session's duration.

Unlike static moving averages, the VWAP resets at the beginning of each new daily session, ensuring the data remains relevant to the current day's trading activity. The script includes a workaround for maximum bars back to ensure consistent standard deviation calculations throughout the session.

Settings

• Source: Determines the price data used for the VWAP calculation (default is HLC3).

FAQ

How do I use the VWAP + Standard Deviation bands for entries?

Many traders look for price to reject the outer bands (Upper Band 2 or Lower Band 2) as a sign of an overextended market, or use a crossover of the central VWAP line as a trend confirmation signal.

Does this indicator work on all timeframes?

While VWAP is most commonly used on intraday timeframes (1m, 5m, 15m, etc.) because it resets daily, the calculation will function on any timeframe supported by the charting platform.

How 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.