Volume Weighted Moving Average (VWMA)
period = 20 (2–200) Overview
The Volume Weighted Moving Average (VWMA) is a technical indicator that evaluates the ratio of an asset's traded value to the sum volumes of transactions over a given period. Unlike traditional moving averages that treat all price points equally, VWMA multiplies each closing price by its corresponding volume before averaging. This methodology ensures that price movements accompanied by high volume have a greater impact on the average, making it particularly effective for filtering out false signals in noisy markets.
The calculation formula Σ(Price × Volume) / Σ(Volume) creates a moving average that closely follows price during high-volume periods while becoming less responsive during low-volume sessions. This characteristic makes VWMA especially valuable for intraday traders and those seeking to confirm trend strength with volume validation. When volume supports price movement, VWMA responds more quickly than simple moving averages, providing earlier signals for genuine market moves.
Interpretation & Trading Signals
VWMA vs SMA Analysis:
- VWMA Above SMA: Volume higher on up days - bullish pressure
- VWMA Below SMA: Volume higher on down days - bearish pressure
- VWMA = SMA: Balanced volume distribution - neutral market
- Gap Widening: Increasing volume conviction in current trend
Trend Identification:
- Upward Sloping VWMA: Strong uptrend with volume support
- Downward Sloping VWMA: Strong downtrend with volume confirmation
- Price Above VWMA: Bullish bias, use VWMA as dynamic support
- Price Below VWMA: Bearish bias, use VWMA as dynamic resistance
Trading Strategies:
- Trend Weakness: VWMA crossing below SMA signals potential trend exhaustion
- Volume Divergence: Price rising but VWMA lagging indicates weak move
- Breakout Confirmation: Price breaking VWMA with volume validates the move
- Reversal Signals: VWMA slope change often precedes price reversals
Example Usage
Code examples will be available once the Rust implementation is complete.
Performance Analysis
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