VAMA Volume Adjusted Moving Average Function

The VAMA Volume Adjusted Moving Average indicator provides a specialized trend-following tool that calculates price averages based on volume increments rather than traditional time intervals. By emphasizing periods of high activity and diminishing the impact of low-volume periods, it offers a more responsive perspective on market momentum and institutional participation.

Usage

The VAMA indicator is primarily used to identify trend direction and potential reversals by filtering out price noise that occurs during low-liquidity periods. Unlike a Simple Moving Average (SMA) that treats every bar equally, VAMA accelerates when volume is high and slows down when volume is low.

The script includes two distinct moving averages (Fast and Slow) to facilitate crossover analysis:

• Trend Identification: When the Fast VAMA is above the Slow VAMA, the market is generally considered to be in an uptrend driven by volume. Conversely, when the Fast VAMA is below the Slow VAMA, a volume-backed downtrend is indicated.
• Crossover Signals: Bullish signals occur when the Fast VAMA crosses above the Slow VAMA, while bearish signals occur when it crosses below.
• Support and Resistance: These moving averages can act as dynamic levels where price reacts, especially during high-volume retracements.

Details

The Volume Adjusted Moving Average was originally developed by Richard Arms. The core logic involves dividing the current bar's volume by an average volume increment to determine its "weight" or "ratio." This ratio determines how much the current price contributes to the moving average total.

A key component of this implementation is the "Volume Increment" (VI), which creates "buckets" of volume. Instead of looking back at a fixed number of bars, the function looks back until a specific volume-weighted threshold is met. This ensures that the moving average reflects a consistent amount of shares or contracts traded rather than a consistent amount of time passed. This implementation is designed as a single function, making it modular for integration into other scripts or strategies.

Settings

General Settings

• SampleN (0 = All): Defines the number of previous bars used to calculate the average volume. Setting this to 0 uses all available historical bars.

Fast VAMA Settings

• VAMA Fast Source: The price input used for the fast volume-weighted calculations (default is Close).
• VAMA Fast Length: The target number of volume ratio increments required to calculate the average.
• VAMA Fast VI Fct: The volume increment factor used to determine the size of the volume buckets.
• VAMA Fast Strict: When enabled, the calculation must strictly meet the volume requirements even if it requires looking back further than the specified length.

Slow VAMA Settings

• VAMA Slow Source: The price input used for the slow volume-weighted calculations.
• VAMA Slow Length: The target volume ratio threshold for the slower, more smoothed average.
• VAMA Slow VI Fct: The volume increment factor for the slow average.
• VAMA Slow Strict: Ensures the slow average meets the required volume increments regardless of bar count.

FAQ

How does VAMA differ from a standard Volume Weighted Moving Average (VWMA)? While a VWMA weights prices by volume over a fixed time window, VAMA adjusts the actual "time" or period length based on volume. VAMA effectively makes the moving average move faster during high-volume activity and slower during low-volume periods.

Can I use this on non-volume instruments like Forex? Yes, but it will rely on "Tick Volume" provided by your data feed. For the most accurate results, it is best used on instruments with centralized exchange volume like Stocks, Futures, or Crypto.

How do I access the VAMA Volume Adjusted Moving Average Function? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.