The Moving Average No One Talks About | Volume Weighted Moving Average (VWMA) Trading Strategy | Summary and Q&A

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August 5, 2019
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The Secret Mindset
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The Moving Average No One Talks About | Volume Weighted Moving Average (VWMA) Trading Strategy

TL;DR

The volume weighted moving average (VWMA) is a technical indicator that incorporates volume into its calculation, providing insights into market strength and trends.

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Key Insights

  • 🔇 The VWMA is a technical indicator that combines volume and price data to analyze market momentum and breakout strength.
  • 📈 It can be used in conjunction with a simple moving average to identify trends and confirm market directions.
  • 🧑‍🏭 The VWMA acts as dynamic support and resistance levels, reflecting the strength of buying or selling pressure.
  • ™️ Traders can utilize the VWMA in breakout strategies, waiting for price retests after a breakout to enter trades.
  • ⚾ The length of the moving average can be adjusted based on the trader's preference and market conditions.

Questions & Answers

Q: What is the volume weighted moving average (VWMA)?

The VWMA is a moving average indicator that incorporates volume in its calculation, giving more weight to closing prices with higher trading activity.

Q: How does the VWMA differ from a simple moving average (SMA)?

The VWMA emphasizes volume, while the SMA only factors in the average of the closing price per period, resulting in different trajectories and insights.

Q: How can the VWMA be used to identify market trends?

A possible uptrend is indicated when the price is above a moving average with an upward slope, while a possible downtrend is indicated when the price is below the moving average with a downward slope.

Q: How can the VWMA be used as support and resistance levels?

When price stays below the VWMA, it indicates high selling pressure and acts as a resistance. Conversely, when price stays above the VWMA, it acts as a support level.

Q: How can the VWMA be utilized in breakout trading strategies?

A breakout below or above the VWMA can be used as a signal for potential trading opportunities. Traders can wait for a price retest after the breakout to confirm the validity of the breakout.

Q: What should be considered when determining the length of the moving average?

The length of the moving average can be adjusted based on the trading style and market conditions. Shorter moving averages react quickly to price movements, while longer moving averages provide smoother analysis.

Q: Does the VWMA work best in trending markets?

Yes, the VWMA is suited for trend-following strategies as it performs best in trending markets. It can also be combined with other signals and techniques for a more comprehensive analysis.

Q: What are the advantages of using the VWMA in trading?

By incorporating volume into the moving average calculation, the VWMA provides insights into market strength, trend confirmations, support and resistance levels, and potential breakout opportunities.

Summary & Key Takeaways

  • The VWMA is a moving average indicator that gives more weight to closing prices with higher volume, emphasizing volume in its calculation.

  • It is most effective when used in conjunction with a simple moving average (SMA) to analyze market momentum and breakout strength.

  • The VWMA can be used to identify and confirm market trends, act as dynamic support and resistance levels, and signal potential breakout opportunities.

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