Volume Weighted MA (VWMA) Indicator
Volume Weighted MA (VWMA) is a popular MT5 indicator for trend analysis. Shows the actual weighted moving average of the price.
Description
Volume Weighted MA (VWMA) is a combination of volume data and a moving average price. This indicator works just like a standard moving average. The only difference is that it gives more weight to high volume bars compared to lower volume bars.
VWMA is a versatile and flexible trend following trading indicator. Apart from beginners, experienced professionals also find this MT5 indicator simple and useful for analyzing market trends. Moreover, a volume-weighted moving average can also be viewed as a dynamic price support/resistance level.
Volume weighted moving average is suitable for all types of timeframes in MT5. Advanced traders use VWMA on multiple timeframes to better gauge market sentiment. Moreover, this indicator supports trading of all types of financial instruments, including forex, cryptocurrencies, stocks, commodities, metals and more.
How to trade using the Volume Weighted MA indicator in MT5
Once you download and install the Volume Weighted MA on your MT5 platform, your chart will look like the image above. The indicator looks like a normal moving average. If you are familiar with the SMA and EMA, you will find that the VWMA is fairly easy to trade. In addition, the indicator line can change color during a trend change.
The indicator’s reaction method is slightly different from a simple moving average. Typically, a moving average reacts to the open, high, low, and close of each price candle. However, the VWMA only selects a high volume candle to determine the asset’s moving average.
We determine the market trend based on the interaction between price and VWMA value. The trend is bullish when the price is above the indicator value. On the contrary, we consider the market trend to be bearish when the price falls below the current VWMA level.
Once you correctly identify the market trend, you can apply various price action strategies to open a trade in the direction of the trend. For example, in an uptrend market, you might trigger a buy order when the price takes the slope of the VWMA as support.
Conversely, for sell orders, first, the price must break below the volume-weighted average. The price should then consider the VWMA line as resistance whenever it returns to the indicator level.
Aggressive traders use the weighted average of volume as a dynamic price breakout level. This means that every time the price breaks the VWMA level, it is considered as a potential breakout trading opportunity.
Conclusion
Volume Weighted MA is a multifunctional moving average indicator. In addition to determining the market trend, it also shows potential levels for entering a trade. In addition, you can use the VWMA lines as a key stop loss level for your active orders. In addition, you can use it along with your favorite moving average to generate trend crossover signals.