馃攳
The Moving Average No One Talks About | Volume Weighted Moving Average (VWMA) Trading Strategy - YouTube
Channel: The Secret Mindset
[1]
When a market makes a strong move on volume,
this means that the price movement is confirmed
[6]
by a simultaneous rise in volume.
[8]
So volume means strength.
[10]
Volume must increase as the trend develops,
whether it is a bull or bear market.
[15]
But what if you combine a moving average and
the volume in order read the market momentum
[21]
or to analyze a breakout strength.
[24]
Would this tool help you make better decisions
when trading or investing?
[28]
Sure it can, and this tool is called volume
weighted moving average.
[32]
So today we鈥檒l talk about the volume weighted
moving average, you鈥檒l learn the importance
[37]
of using it and I鈥檒l show you how to use
it in a trading strategy.
[41]
Before we continue, if you are new to my channel,
make sure you subscribe, turn on the notifications
[47]
and leave a like to show your support.
[51]
The volume weighted moving average is a moving
average indicator which includes volume in
[56]
its calculation.
[58]
This moving average places more importance
on the closing prices which had a higher volume.
[64]
It incorporates not only the last number of
periods of price into its calculation but
[70]
also the average volume during those periods.
[73]
The volume-weighted moving average (VWMA)
emphasizes volume by weighting prices based
[79]
on the amount of trading activity in a given
period of time.
[83]
Prices with heavy trading activity get more
weight than prices with light trading activity.
[89]
This is very important information because
you can make better decisions when you add
[94]
volume into your trading strategy.
[97]
You could read the volume weighted moving
average in a similar manner to other moving
[102]
averages.
[103]
Its main use, however, arises when it is used
in conjunction with a SMA.
[108]
So, let鈥檚 analyze a chart with a 50 SMA
and a 50 volume weighted moving average.
[115]
At a first glance, you will see that they
pretty much follow the same trajectory.
[119]
However, on further analysis, you will notice
the averages don鈥檛 mirror each other exactly.
[126]
The reason for this, as I previously said,
is because the volume weighted ma emphasizes
[132]
volume, while the SMA only factors the average
of the closing price per period.
[138]
So, if you pay attention at the volume at
the bottom of the screen you will notice that
[144]
when we have a big volume candlestick, the
volume weighted moving average starts moving
[150]
away from the trajectory of the simple moving
average.
[153]
Then, when we have lower market volumes, the
simple moving average and the volume weighted
[159]
moving average are very close in value.
[162]
When the volume is stronger, the volume weighted
moving average will follow price more closely,
[169]
and when volume decreases, it will mimic a
simple moving average.
[175]
When the 50 volume weighted moving average
is between price and the 50 simple moving
[181]
average SMA(50), then volume confirms we are
trending in that direction.
[186]
Look at this example.
[187]
At the exact moment of the breakout, the volume
weighted moving average was well above the
[194]
SMA already, showing us that volume confirms
the uptrend.
[200]
The retrace even bounced off from the volume
weighted moving average instead of the SMA
[206]
as support.
[208]
So, how do you read the volume weighted moving
average?
[212]
A volume weighted ma moving below an simple
moving average indicates bearish conditions.
[219]
So, if the volume weighted moving average
crosses below the simple moving average, this
[225]
implies that a bearish move is on the horizon.
[229]
This could lead to a weakening in the bullish
trend or a possible reversal.
[233]
If the price is able to break through both
the volume weighted ma and the SMA a bearish
[240]
trend is confirmed and you can start searching
for short positions.
[245]
A volume weighted ma above an SMA indicates
bullish conditions.
[252]
So, if the volume weighted moving average
moves above the simple moving average, a bullish
[258]
trend change is likely.
[261]
Once the price is able to break both the volume
weighted ma and the SMA to the upside, you
[268]
can start searching for long opportunities.
[274]
Separation between a volume weighted ma and
the simple ma indicates a trending market.
[281]
In other words, if the volume weighted moving
average is between the chart and the simple
[287]
moving average, then we have a signal for
a trending market.
[290]
Keep in mind that sometimes the volume weighted
moving average will test the simple moving
[296]
average as a support and resistance, depending
on the primary direction of the traded instrument.
[302]
These tests can be considered as potential
trend reversals.
[306]
It doesn鈥檛 mean that the market will reverse,
it may continue its direction, like in this
[312]
example, you just have to pay attention to
possible turning points.
[318]
Both moving averages closer together might
suggest an exit point.
[324]
This signal is pretty much the opposite of
the previous one.
[327]
You look for a contrary signal to the primary
trend.
[331]
For example, you have taken a long position
and you notice no separation between the volume
[337]
weighted ma and the simple ma.
[341]
This is the moment where you might want to
consider exiting the market and to collecting
[346]
your profits.
[347]
Now, let鈥檚 see how you could use the volume
weighted ma by its own, without the simple
[353]
ma
First, to identify and confirm market trend
[359]
If you want to trade in the direction of the
prevailing trend on the market, a volume weighted
[363]
ma can offer some important clues.
[366]
However, don鈥檛 forget that a moving average
is a lagging indicator, so it doesn鈥檛 predict
[371]
new trends, just confirms the market trends
once they have been developed.
[376]
So how you find and confirm trends with the
volume weighted ma:
[380]
A possible uptrend is when the price is above
a moving average and the slope of the moving
[387]
average is upward
A possible downtrend is when the price is
[392]
below the moving average and its slope is
downward
[397]
The slope of volume weighted ma is simply
the direction of the moving average plotted
[401]
on the chart.
[404]
Another way to trade using volume weighted
moving averages is to look at them as dynamic
[409]
support and resistance.
[411]
They are referred to as dynamic because they
are not like the traditional support and resistance
[417]
lines on the chart.
[419]
They tend to change as price changes.
[422]
Being so common and followed by so many people,
we can often see on charts that the price
[427]
often stalls or bounces when hitting popular
moving averages.
[434]
Although volume weighted moving averages are
not like the normal support and resistance,
[439]
they tend to behave the same way.
[441]
As price stays below the volume weighted moving
average several times, it shows high selling
[447]
pressure in the market.
[449]
As the price finds it hard to break through,
it means that the sellers are stronger than
[454]
buyers.
[456]
The volume weighted moving average above the
price becomes a resistance and price is likely
[461]
to bounce back offering short opportunities.
[465]
Likewise when price stays above at the volume
weighted moving average, it becomes a support
[472]
and therefore is likely to bounce back, offering
buy opportunities.
[479]
Like any other support and resistance level,
price cannot hold forever, and sometimes these
[484]
levels are violated and price breaks through.
[488]
You can also take advantage of a strong break
below or above the volume weighted moving
[493]
average to trade a breakout.
[495]
A classic way to trade a break out is to wait
for a price retest after the break, to avoid
[501]
a fake out.
[503]
Another strategy for overcoming the problem
with false signals is to wait a certain number
[509]
of candles after the moving average line has
been crossed by the price before you enter
[514]
your trade.
[515]
This way, you filter out a lot of the choppy
price movements during times when the market
[522]
is not showing any clear direction.
[525]
Volume weighted moving average helps a lot
to smooth out price action.
[530]
What you need to know is that the longer the
moving average, the smother it becomes and
[536]
the slower it gets to reacting to price movements.
[540]
Also, the shorter the moving average the choppier
it gets and the quicker it reacts to price
[547]
movements.
[548]
In a fast-moving trend, you will want to use
a faster moving average, in a slow-moving
[553]
trend, a slower moving average sometimes works
better.
[558]
You can set the length of the moving average
to suit your trading style.
[562]
Just remember that prices with heavy trading
activity get more weight than prices with
[568]
light trading activity.
[571]
The volume weighted moving average is suited
to trend following strategies, because this
[577]
indicator performs best in trending markets.
[581]
You can also use the volume weighted moving
in combination with other signals and techniques,
[586]
to get a more comprehensive analysis of the
market.
[590]
Now, if you got value from this this video
or learned something new, make sure you subscribe,
[596]
turn on the notifications so you don鈥檛 miss
future uploads and leave us a like to show
[600]
your support.
[602]
Until next time.
Most Recent Videos:
You can go back to the homepage right here: Homepage