Elastic Volume Weighted Moving Average

The Elastic Volume Weighted Moving Average indicator provides a volume-sensitive smoothing method that adapts its reactivity based on trading activity, offering a more representative view of the average price paid over a specific period. By incorporating volume as a coefficient in the moving average calculation, it ensures that high-volume periods have a greater impact on the trend line than low-volume periods.

Usage

The Usage section describes how the script can be used, examples should be provided in this section. The Elastic Volume Weighted Moving Average (EVWMA) can be utilized as a trend-following tool or a dynamic support and resistance level.

• Trend Identification: Users can observe the slope and color of the EVWMA. A rising, green line indicates a bullish trend supported by volume, while a falling, red line indicates a bearish trend.
• Price Crossovers: A common strategy involves looking for price crosses. When the source price crosses above the EVWMA, it may signal a potential bullish entry; conversely, crossing below may signal a bearish exit or short opportunity.
• Elasticity Interpretation: Unlike a standard Simple Moving Average (SMA), the EVWMA is "elastic" because it moves closer to the price when volume spikes, reflecting the new consensus value more quickly during heavy trading activity.

Details

The Elastic Volume Weighted Moving Average was originally developed by Christian P. Fries and featured in the June 2001 issue of Technical Analysis of Stocks & Commodities.

The core concept relies on the "Total Volume" over a specific period. The formula calculates the average by taking the previous EVWMA value, weighting it by the difference between the total volume sum and the current volume, and then adding the current price weighted by the current volume. This process essentially treats the market as if it has a fixed number of shares or contracts; as new volume enters, it "displaces" the old price data proportionally.

Settings

• Length: Defines the lookback period (number of bars) used to calculate the total volume sum.
• Highlight Movements?: A toggle to enable or disable color changes. When active, the line changes color based on whether the current EVWMA value is higher (green) or lower (red) than the previous value.
• Source: Determines the price data used for the calculation (e.g., Close, Open, High, Low, HL2).

FAQ

How does the EVWMA differ from a standard VWAP? While both use volume, a VWAP is typically anchored to a specific starting point (like the market open), whereas the EVWMA uses a rolling window (length) and a recursive calculation that makes it behave more like an exponential moving average weighted by volume.

Can this indicator be used for alerts? Yes, the script includes built-in alert conditions for price crossovers with the EVWMA and for when the EVWMA itself changes direction (turning up or down).

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