Volume Adjusted Moving Average (VAMA) (untradable)

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Category: Advanced Indicator Set 1

 

Input parameters

Name

Setting

Default

Price

Price Time Series

Close

Volume

Volume Time Series

Volume

Period

Integer >= 1

8

 

Calculations

a. Compute the overall average volume in the chart: AvgVol = Average(Volume, all bars in the chart).

b. Compute the volume increment: VolInc = AvgVol * 0.67.

c. For each bar in the chart compute the volume ratio: VolRatio = Volume / VolInc.

d. Starting from the current bar and working backwards compute CumSum = Sum(VolRatio * Price) and CumDiv= Sum(VolRatio). Stop when CumDiv=Period or Period bars are processed. In order to satisfy first condition only a fraction of the last VolRatio may be used.

e. VAMA = CumSum / CumDiv.

 

Discussion

Developed by Richard W. Arms, Jr. [1], the volume-adjusted moving average indicator (sometimes  called Equivolume charting) makes price and volume equal partners in computing the price average. The volume value is used as a weight factor for the price value. Therefore, the VAMA is responsive to changes in the trading volume. Important days on the market (high trading volume) have greater contribution in the moving average than days with low trading volume.

The most interesting feature of the VAMA is that it averages the price within specified Period volume increments, not within the last Period bars. The volume-weighted price summation is performed until the cumulative volume reaches the value of (Period * Volume Increment). Therefore, the effective look back period varies depending on how heavy or low the volume was on preceding bars (though Period is the maximum number of bars for look back period).

As with any moving average, the VAMA can be used to detect turning points on the market. This can be done by identifying crossover points between slow (Period=55) and fast (Period=8) VAMAs for the same stock.

 

NOTE. The VAMA indicator CANNOT be used in trading strategies or neural nets used in trading strategies. This indicator was designed to be viewed as a trend curve through the entire set of data. It is not appropriate for use in a trading strategy because new data bars can cause the trend line to change the trend through past data. This in turn can cause the NeuroShell Trader signals to change in the past. Use this indicator ONLY for viewing in a static chart, but do NOT insert it in a trading strategy or a neural net used for trading.

 

References

1. Arms, Richard W., Jr., Volume-Adjusted Moving Averages, Technical Analysis of Stocks & Commodities, March 1990, v.8, no.3, p.109-111.