Anchored VWAP Magnetized

The Anchored VWAP Magnetized indicator tracks the volume-weighted average price from a user-defined anchor point with integrated standard deviation bands and a historical probability distribution to measure mean-reversion potential. It identifies overextended price action and uses a statistical engine to verify if fading the outer bands has historically provided an edge on the current chart and timeframe.

Usage

The Usage section describes how the script can be used to identify fair value and potential reversal zones.

• Fair Value Identification: Use the AVWAP line as a dynamic fair value reference. Price trading above the line indicates a bullish bias (highlighted in orange/amber), while price below indicates a bearish bias (highlighted in blue).
• Defining Ranges: The ±1σ bands represent the typical range for the selected anchor period. Price action generally stays within these boundaries; a touch suggests a stretch but is not a standalone signal.
• Fade Signals: A confirmed close beyond the ±2σ band serves as the primary fade signal. Closing above the upper band suggests a bearish mean-reversion bias, while closing below the lower band suggests a bullish bias. Signal strength is displayed via dot size, where larger dots represent deeper excursions beyond the band.
• Statistical Verification: Before acting on a signal, consult the mini-readout. If the "Recent Form" or "Wilson Verdict" shows no edge, the historical data suggests the current regime does not support mean reversion. If the readout indicates the "Magnet Regime," both sides of the bands have successfully pulled price back to the VWAP, favoring range-trading over breakout strategies.

Details

The script calculates VWAP as a running weighted average where each bar contributes its typical price multiplied by volume to a cumulative sum, which is then divided by cumulative volume. Standard deviation bands are calculated using a computational variance formula (E[tp²] − E[tp]²) to ensure accuracy over expanding anchor windows without requiring multiple data passes.

The probability layer records the forward percentage return for every past outer-band touch over a defined "Horizon." It computes a kernel-smoothed density to generate a bell curve (distribution panel) anchored to the right of the chart. This allows traders to see the median outcome and win rate of historical fades. The "Recent Form" feature uses a Wilson lower-bound test to detect regime shifts, ensuring the statistical readout reflects current market behavior rather than stale historical data.

Settings

■ Anchor

• Anchor: Selects the reset point for VWAP (Session, Week, Month, or Custom).
• Custom Date (Year/Month/Day): Sets the specific start point when the "Custom" anchor is selected.

■ Calculation

• Source: The price input used for VWAP (default is HLC/3).
• Inner/Outer Band (σ): Multipliers for the standard deviation bands. Default values are 1.0 and 2.0.

■ Signals

• Confirm bars: Number of bars required for signal confirmation. A value of 1 ensures signals only fire on a confirmed close to prevent repainting.

■ Probability Read

• Probability Read (master): Toggles the entire statistical and probability layer.
• Horizon (bars): The look-ahead window used to measure the outcome of a signal.
• Recent Window (outcomes): Defines the sample size for the "Recent Form" calculation to detect market regime shifts.
• Evidence Strictness (Wilson): Sets the confidence level (80%, 90%, or 95%) for the statistical evidence test.

FAQ

How do I interpret the heat-colored wave? The color transition represents price position relative to the bands. Warm colors (orange) indicate price is overextended to the upside, while cool colors (blue) indicate price is overextended to the downside relative to volume-weighted fair value.

What is the "Magnet Regime"? The Magnet Regime is detected when historical data shows that both bullish and bearish fades from the outer bands have a high probability of returning to the VWAP. This typically occurs in ranging markets.

How do I access the Anchored VWAP Magnetized? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.