L2 Veronique Valcu VWAP Z-Score Indicator

The L2 Veronique Valcu VWAP Z-Score Indicator is a momentum-based oscillating tool designed to display directional price changes normalized in terms of standard deviation relative to the Volume Weighted Average Price (VWAP).

Usage

The indicator can be used to identify trend reversals and overextended market conditions through the interaction of its two primary curves.

• Signal Crosses: A bullish signal is generated when the fast curve (Curve 1) crosses above the slow curve (Curve 2), typically used to identify upward momentum shifts. Conversely, a bearish signal occurs when the fast curve crosses below the slow curve.
• Overbought/Oversold Zones: The indicator plots horizontal levels at 0, ±2, and ±4. Moves into the shaded areas between ±2 and ±4 suggest that the VWAP Z-Score is reaching extreme levels, potentially indicating a mean reversion opportunity.
• Zero Line: The zero line serves as the equilibrium point where the price is exactly at its moving average; crosses above or below this level can indicate broader shifts in trend sentiment.

Details

This implementation is based on Veronique Valcu's 2003 "Z-Score Indicator" article, which introduced a method for normalizing directional change. This specific version enhances the original concept by applying the Z-Score calculation to the VWAP instead of standard price data.

The Z-Score is calculated by taking the difference between the VWAP and its Simple Moving Average (SMA), then dividing that result by the standard deviation of the VWAP over the same period. This provides a statistical measure of how many standard deviations the current VWAP is from its mean. The resulting values are then smoothed using two user-defined factors to create a "Fast" and "Slow" signal line system.

Settings

• Average Length: Determines the lookback period used for the Simple Moving Average and Standard Deviation calculations within the Z-Score formula.
• Smoothing Factor 1: Sets the length of the SMA used to smooth the raw Z-Score, creating the first curve (Curve 1).
• Smoothing Factor 2: Sets the length of the SMA applied to Curve 1 to create the signal line (Curve 2).

FAQ

How do I access the L2 Veronique Valcu VWAP Z-Score Indicator?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.

What does a Z-Score of 2 signify?

A Z-Score of 2 indicates that the current VWAP is two standard deviations above its mean, which statistically suggests an overextended price move that may be prone to a pullback.

Can this indicator be used for alerts?

Yes, the indicator includes built-in alert conditions for both Long (Buy) and Short (Sell) signals based on the crossovers of the smoothed Z-Score curves.