VWMA averaging indicator. An excellent analogue of a simple moving average
The moving average is the instrument on the basis of which the first forex indicators were built. which began to be used long before the advent of online commerce.
Just think, a simple line that shows the average price over a certain time allows you to look at the price without a biased eye, throw unnecessary market noise aside and, most importantly, identify the trend and its changes in time.
However, the same moving average has one huge drawback - all candles for the allotted period are taken into account in its calculation, and the real weight of this candle is not taken into account.
In order to overcome this drawback, a new type of averaging was created that takes into account market volume, and VWMA is built on its basis.
The VWMA averaging indicator is a trend tool for technical analysis, which in its principles of application is no different from the moving average, however, at the same time, in the process of averaging and calculation, volume is taken into account, and in the case of the Forex market, tick volume.
It is also worth noting that VWMA can serve as a basis for both scalping strategies, and for long-term ones, so the tool can be used on absolutely any time frame known to you.
Installing the VWMA indicator in MT4
The idea of taking into account volume when calculating a moving average is far from new, but this indicator was implemented only in 2016, especially for the MT4 trading terminal.
It is worth noting that the VWMA averaging indicator is distributed completely free of charge, and the tool was published in the official MT4 developer library, which allows you to use two installation methods.
The first method, and it is also the simplest, is implemented using the built-in library in your MT4. In order to install the indicator through the library, launch your trading terminal and go to the “Terminal” panel where the current balance information is located.
Then you will need to open the "Library" tab and sort so that only indicators are displayed in the list. Find VWMA in the resulting list and use the additional menu as shown in the image below to download:
If installation through the library caused difficulties, you can use the second method, namely, install according to the standard scheme through the data directory.
To do this, you just need to go to the end of the article and download the indicator file, and then place it in the appropriate folder of the terminal data directory, namely in the indicators folder.
After restarting the platform or updating it in the panel, the VWMA navigator will appear in the list of custom indicators, and in order to start using it, just drag the name of the instrument onto the chart. Principle of using VWMA
The VWMA indicator is nothing more than a modernized version of the trend indicator Moving Average , with the only fundamental difference that VWMA takes into account volumes, but Moving Average does not.
Thus, the principle of application of signals for opening positions remains identical.
Since moving averages are primarily a trend indicator, in most cases traders consider them as a filter.
Thus, the direction of the trend can be indicated to us both by the placement of the price relative to the line and by the angle of inclination of the line.
So, if the price is located above the VWMA, we can state an upward movement of the market, and if below it, a downward movement.
The angle of inclination also matters, since the greater the inclination, the stronger the tendency. Also, many traders use VWMA with a fast and slow period to assess the trend, and if the fast VWMA is above the slow one, the trend is upward, and if below it, the trend is downward.
The point where the lines intersect shows us the entry point and change in trend in the market.
Often, VWMA can be considered as some kind of support or resistance, especially if very large periods are used on small time frames.
Thus, a trader can use the indicator in two ways, namely, trade on a breakdown of the line, or on a rebound from it.
When trading a breakout, a buy signal will be the price crossing the line from bottom to top, and a sell signal will be the price crossing the line from top to bottom. When trading on a rebound, you need to pay attention to the general direction of the trend and trade strictly in its direction, contrary to the short-term direction.
Example:
In conclusion, it is worth noting that the VWMA averaging indicator is an excellent modification of the standard moving average .
However, it is worth understanding that in Forex there is only tick volume, and its information content is an order of magnitude lower than standard. Download the VWMA averaging indicator .