Candle Level of Volume Weighted Average Price

The Candle Level of Volume Weighted Average Price indicator calculates the relative position of a candle's price in terms of standard deviations from the Volume Weighted Average Price (VWAP). This tool helps traders visualize price overextensions and mean reversion opportunities by normalizing price action against volume-weighted volatility.

Usage

The indicator can be used to identify when price is significantly deviated from its volume-weighted mean. It plots a zero line representing the VWAP and several standard deviation bands (1σ, 2σ, and 3σ) to serve as overbought or oversold references.

• Mean Reversion: When the LVWAP line reaches extreme levels (e.g., above 2σ or 3σ), it suggests price may be overextended and could return toward the zero line.
• Trend Confirmation: Sustained movement above the zero line indicates bullish volume-weighted momentum, while movement below indicates bearish momentum.
• Smoothing: Users can enable smoothing to filter out market noise and focus on the broader trend of the price-to-VWAP relationship.

Details

The script functions by calculating the standard VWAP and its corresponding standard deviation based on a user-defined anchor period. The "Level" (LVWAP) is then derived by taking the difference between the price source and the VWAP, then dividing it by the calculated standard deviation. This creates an oscillator-style output that quantifies price distance in "sigmas." A spike filtering mechanism is also included to cap extreme values at ±5 standard deviations, ensuring the chart remains readable during high-volatility events.

Settings

VWAP Settings

• Price Source: Determines which candle price (Close, High, Low, etc.) is used to calculate the deviation level.
• VWAP Source: The data source used for the underlying VWAP calculation (default is HLC3).
• Anchor Period: Specifies the multiplier for the chosen timeframe session.
• Session Type: Defines the period for resetting the VWAP calculation (Day, Week, Month, Year, or a fixed Length).
• Enable Spike Filtering: When active, it limits the indicator output to a range of -5 to 5 to prevent extreme price spikes from distorting the oscillator.

Level VWAP Smoothing

• Enable Smoothing: Toggles the moving average filter on the final output.
• Length: Sets the period for the smoothing calculation.
• Type: Allows users to choose between different moving average types (RMA, SMA, EMA, WMA).

FAQ

How do I use the standard deviation levels?

The levels act as statistical boundaries. The 1σ level contains the majority of price action, while the 2σ and 3σ levels represent statistically significant deviations that often precede reversals or consolidations.

Can I change the anchor period to a custom length?

Yes, by selecting "Length" in the session settings, you can define a specific lookback period for the VWAP calculation instead of using fixed calendar periods like "Day" or "Week."

How can I access Candle Level of Volume Weighted Average Price?

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