Volume Weighted MA (VWMA) Indicator
Volume Weighted Moving Average (VWMA) is a popular MT4 indicator for trend analysis. Shows the actual weighted moving average of the price
The Volume Weighted MA (VWMA) represents a combination of volume data and the moving average of the price. This indicator works just like a standard moving average. The only difference is, it gives more weight to high volume bars compared to bars with lower trading activities.
VWMA is a versatile and flexible trend-following trading indicator. Besides beginners, experienced professionals also find this MT4 indicator easy and useful for analyzing market trends. Moreover, a volume-weighted moving average can also be treated as a dynamic support/resistance level of the price.
Volume weighted moving average suits all types of timeframes in MT4. Advanced traders apply VWMA in multi-timeframes for a better assessment of the market sentiment. Moreover, this indicator supports trading all types of financial instruments including forex, cryptos, stocks, commodities, metals, and more.
How to trade using the Volume Weighted MA indicator in MT4
After you download and install Volume Weighted MA in your MT4 platform, your chart will appear like the above image. The indicator appears as like as a regular moving average. If you’re familiar with SMA and EMA, you’ll find VWMA quite easy to trade with.
The reaction method of the indicator is slightly different from simple moving average. Generally, a moving average reacts based on the open, high, low, and close of each price candle. However, VWMA only picks the candle with high trading volume for determining the moving average value of the asset.
We determine the market trend based on the interaction between the price and VWMA value. The trend is bullish when the price is greater than the indicator value. Oppositely, we consider the market trend as bearish when the price drops below the current VWMA level.
Once you identify a market trend correctly, you can apply various price-action strategies for opening a trade within the trend direction. For example, in an uptrend market, you may activate a buy order when the price respects the VWMA slope as support.
Oppositely, for sell orders, first, the price needs to break below the volume-weighted average level. Next, the price should be treating the VWMA line as a resistance whenever it retraces back to the indicator level.
Aggressive traders use the volume-weighted average as a dynamic price breakout level. This means every time the price breaks a VWMA level is considered as a potential breakout trading opportunity.
Conclusion
The Volume Weighted MA is a multi-functional moving average indicator. Besides identifying the market trend it also shows potential levels for trade entries. Moreover, you can use the VWMA lines as the key stop-loss level for your active orders. Also, you can apply it alongside your favorite moving average for plotting crossover trend signals.
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