Description
The VWMA Breakouts strategy is a moving average-based breakout indicator designed by Ken Calhoun for swing trading in volatile markets. Its main purpose is to combine the beneficial properties of a simple moving average and a volume-weighted one. As the name implies, the volume-weighted moving average (VWMA) assigns different weights to the close price when calculating the average; greater weights being assigned to close price readings that have shown higher volume.
The indicator consists of two lines: an SMA of the close price, which acts as a trendline, and a VWMA line, being a signal line. When the price rises on high volume, the VWMA line is likely to be seen moving further away from the SMA, which may be regarded as a signal for uptrend continuation. Simulated trade signals are given upon crossovers of the VWMA and the SMA. When the VWMA crosses above the SMA, a buy to open signal is indicated. When it falls back below the SMA, a sell to close signal is given.
By default, a 50-period VWMA and a 70-period SMA lines are calculated; these values are suggested by the author for use on 15-day 15-minute charts. These values as well as the type of the moving average to be used as the trendline can be modified in the input parameters.
Input Parameters
|
Parameter |
Description |
|---|---|
vwma length
|
The length of the volume-weighted moving average. |
ma length
|
The length of the moving average to be used as the trendline. |
average type
|
The type of the moving average to be used as the trendline. |
Plots
|
Plot |
Description |
|---|---|
VWMA
|
The plot of the signal volume-weighted moving average. |
MA
|
The plot of the trendline moving average. |
Further Reading
1. "Volume-Weighted Moving Average Breakouts" by Ken Calhoun. Technical Analysis of Stocks & Commodities, February 2017.