VWMA: Volume Weighted Moving Average Indicator
The Volume Weighted Moving Average (VWMA) is a technical indicator used to measure the average price of a security over a set period of time, adjusted for volume.
However, the VWMA places more emphasis on periods of high volume, which are thought to be more significant than periods of low volume.
The VWMA is calculated by adding the product of each period’s price and volume post. We will take a look at the VWMA indicator and how you can use it in your trading and divide it by the total volume for the period.
In this blog post, we will take a look at the VWMA indicator and how you can use it in your trading.
What is Volume Weighted Moving Average Indicator?
The Volume Weighted Moving Average is an indicator that uses both price and volume to measure market activity. Unlike a traditional moving average, which only uses price data, the VWMA also factors in volume data.
This makes it a more accurate representation of market activity, as it takes into account not only the price of security but also the amount of trading activity behind that price.
The VWMA is calculated by taking the sum of all traded prices multiplied by the volume for each period and then dividing by the total volume for that period.
As with any moving average, the VWMA can be used to identify trends and trend reversals. When the VWMA is rising, it indicates that prices are being supported by increasing levels of trading activity.
Conversely, when the VWMA is falling, it indicates that prices are being weighed down by decreasing levels of trading activity.
How to use the VWMA Indicator?
The VWMA indicator is a simple yet effective tool that can help you make better trading decisions. Here’s how to use it:
1. Look for the VWMA line to cross above or below the price action.
2. If the VWMA line crosses above the price action, it’s a signal to buy. If it crosses below, it’s a signal to sell.
3. Use other technical indicators to confirm the signal before making a trade.
4. Place your stop loss just below the recent swing low (for long trades) or just above the recent swing high (for short trades).
5. Take profit when the price action closes below or above the VWMA line (depending on your trade setup).
Support and Resistance Levels for VWMA Indicator
The VWMA indicator can be used to identify support and resistance levels in a given market. By taking into account the volume of trading activity, the VWMA provides a more accurate picture of market conditions than other moving average indicators.
When the VWMA is rising, it indicates that buying pressure is increasing and that prices are likely to continue to move higher. Conversely, when the VWMA is falling, it suggests that selling pressure is mounting and prices are likely to head lower.
Support level occurs when the VWMA indicator starts to rise after previously falling, indicating that buyers are beginning to step in and push prices higher.
A resistance level happens when the VWMA indicator starts to fall after previously rising, showing that sellers are starting to take control and push prices lower.
In either case, if the market breaks through a support or resistance level marked by the VWMA indicator, it could signal a significant change in market direction.
How to create a trading strategy with VWMA Indicator
If you are looking to create a trading strategy with the VWMA indicator, there are a few things you will need to take into account.
First, you need to make sure that the period of the indicator is set to 20. This is because the VWMA is a lagging indicator, and setting the period to 20 will help to smooth out any volatility in the data.
Next, you will need to identify whether the market is currently in an uptrend or downtrend. You can do this by looking at the price action on the chart and seeing if it is making higher highs and higher lows (uptrend), or lower lows and lower highs (downtrend).
Once you have identified the trend, you can then look for trading opportunities with the VWMA indicator. If the market is in an uptrend, you can look for buy signals when the price action crosses above the VWMA line.
Similarly, if the market is in a downtrend, you can look for sell signals when the price action crosses below the VWMA line.
It is also important to note that the VWMA should not be used as a standalone indicator. Rather, it should be used in conjunction with other technical indicators such as support and resistance levels, Fibonacci retracements, and moving averages.
VWMA Indicator at Traderlands Strategy Creator Tool
You can start creating a strategy by selecting the “Volume Weighted Moving Average (VWMA)” indicator from the list. An example strategy is shown in the image below. You can use the VWMA indicator to create a strategy after doing your own research.
Enter Algorithm Rules You Can Add To Strategy Creator
Exit Algorithm Rules You Can Add To Strategy Creator
WARNING: The entry and exit strategies in the images are prepared ONLY for educational purposes to explain how indicators work. It does not guarantee any profit.
When creating an algorithmic trading strategy, a rule set is usually created by using more than one indicator.
Other Indicators can be used with the VWMA Indicator
In addition to the VWMA indicator, other indicators can be used to identify market trends and generate trading signals. Some of the most popular indicators include the Moving Average Convergence Divergence (MACD) indicator, the Relative Strength Index (RSI) indicator, and the Stochastic Oscillator.
Each of these indicators has its own unique strengths and weaknesses, so it’s important to understand how each works before using them in your trading strategy.
The MACD indicator is a momentum indicator that measures the difference between two moving averages. The RSI indicator is a momentum indicator that measures whether an asset is overbought or oversold. The Stochastic oscillator is a momentum indicator that measures the relationship between an asset’s current price and its past prices.
Each of these indicators can be used alone or in combination with other technical analysis tools to generate trading signals.
For example, a buy signal might be generated when the MACD indicator crosses above the Signal line or when the RSI indicator moves above 50.
A sell signal might be generated when the MACD indicator crosses below the Signal line or when the RSI moves below 50.
When using multiple indicators, it’s important to remember that no single indicator is perfect. They all have their own strengths and weaknesses, so it’s important to use them in combination with other technical analysis tools to confirm trading signals.