A moving average that weights each price by the volume that traded at it — showing not where the line passed, but where the participation actually accumulated.
The Volume Weighted Moving Average (VWMA) is, as the name promises, a moving average in which each price in the lookback window is weighted by the volume that traded during that period. Where a Simple Moving Average (SMA) treats every price equally, VWMA proceeds from a different idea: the prices at which the most participants actually traded should weigh the most.
It is easily confused with VWAP — the Volume Weighted Average Price — but the two are distinct. VWAP is a cumulative session indicator that resets at each new session, used by institutions as an execution benchmark. VWMA is a rolling n-period moving average, used like an SMA: as the foundation of trend-following logic.
If SMA shows the path the price drew, VWMA shows where the weight of the participants gathered.
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