VAMA Volume Adjusted Moving Average Bands

The VAMA Volume Adjusted Moving Average Bands indicator provides a dynamic volatility envelope based on Richard Arms' Volume Adjusted Moving Average to identify trend exhaustion and potential reversal zones. By calculating a moving average through volume increments rather than time, the indicator adapts its responsiveness to market activity, offering a more nuanced view of price action compared to traditional time-based bands.

Usage

The Usage section describes how the script can be used to analyze market volatility and trend strength. This tool is particularly effective in identifying overextended price movements where volume-weighted averages suggest a decoupling from standard price flow.

• Trend Identification: When price maintains a position between the basis and the upper or lower bands, it signifies a strong volume-supported trend.
• Mean Reversion: Prices extending beyond the upper or lower bands indicate high volatility relative to volume. Traders often look for price to return to the VAMA basis line.
• Support and Resistance: The bands act as dynamic support and resistance levels. A breakout with significant volume can cause the bands to expand, while low-volume consolidation causes them to contract.

Details

The script utilizes a live analysis adaptation of Richard Arms' Volume Adjusted Moving Average (VAMA). Unlike standard moving averages that treat every bar equally, VAMA assigns weight based on volume "buckets." If a bar has high volume, it accounts for a larger portion of the average; if it has low volume, its impact is reduced.

The volatility bands are constructed by calculating the Standard Deviation of the VAMA basis. This creates a hybrid approach where the core trend is volume-dependent, but the outer boundaries are statistically derived from recent price volatility. Because the period length is based on volume increments, the indicator's "lookback" essentially stretches during low-volume periods and compresses during high-volume surges.

Settings

• SampleN (0 = All): Defines the number of volume bars used as a sample to calculate average volume. Setting this to 0 uses all available bars on the chart.
• VAMA Source: The price source used for the volume-weighted calculations (e.g., Close, HL2).
• VAMA Length: The specified number of volume ratio "buckets" required to complete the average calculation.
• VAMA VI Fct: The volume increment factor which determines the size of the volume ratio buckets.
• VAMA Strict: When enabled, the calculation must strictly meet the desired volume requirements, even if the number of bars processed exceeds the VAMA Length.
• STDV Factor: The multiplier for the Standard Deviation used to determine the width of the bands.
• STDV Length: The lookback period for calculating the Standard Deviation of the VAMA basis.
• Style Band Colors: Customizes the color and transparency of the basis, upper band, lower band, and background fills.

FAQ

How does VAMA differ from a standard Volume Weighted Moving Average (VWMA)? While both use volume, VAMA uses volume increments to determine the "time" component of the average, effectively creating a chart where the horizontal axis is measured in volume rather than minutes or days.

Why do the bands occasionally look different on different timeframes? Since the calculation is volume-dependent, the underlying volume data per bar changes across timeframes, affecting how the volume buckets are filled and calculated.

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