*Note: This documentation is written under the assumption that the reader has a general understanding of VWAP.
Standard VWAP problem:
When the Length input for VWAP is set to Day, the VWAP is most accurate at the end of the Day because that is when the VWAP has a full day’s worth of data to calculate an average price. The loading phase of a VWAP is easiest to define as the time when the standard deviation bands are still rapidly widening from zero before they level out. If prices are directional during the loading phase it is very common to see price move to a deviation band and ride it. This is because standard VWAP is always Adding New Data into the calculation meaning the length of the VWAP is constantly getting longer.
*Note about deviation bands – they are a randomness calculation. From a math standpoint trends are a lack of randomness. Deviation band success as a trading tool depend on markets maintaining a high enough level of randomness to produce ranges.
Auto Cycled VWAP:
The auto cycled VWAP calculates 3 staggered VWAPs and phase shifts between them to ensure a full length VWAP is always being displayed. This completely eliminates the Loading Phase of the VWAP. Similarly, the standard deviation bands are also auto cycled to eliminate their loading phase as well.
Only the ‘VolumeLength’ and ‘AggregateAvg’ settings are auto cycled. The VWAP from ‘Earnings’ and from ‘TimeDate’ settings begin the VWAP at the respective date.
Settings available:
VWAP for a Volume Length
First, select which chart bar aggregation you want to watch, this indicator works on time bars or tick bars. Then select the desired Length of Volume for the VWAP. For example, if you input 10,000 then you will see the Auto Cycled VWAP calculated for every 10,000 volume.
VWAP at an Average Volume Length
If you are not sure what length of volume to use, you can select the ‘AggregateAvg’ setting. This finds the average volume for a selected input time-frame and calculate the VWAP for that length of volume. For example, if 1Day is selected the program find the average volume per 1Day and calculates an Auto Cycled VWAP for that length of volume.
VWAP from Earnings
Earnings is an important date for a stock. You can calculate a VWAP from a stock’s earnings date – Note – a VWAP will not calculate if there are not sufficient bars between the current bar and the earnings date, also, the earnings date must occur on the chart you’re viewing.
VWAP from Date & Time
If you want to calculate a VWAP from a particulate date and time, you can select ‘FromDateTime’ and input the desired date and time (24Hr format). The program then calculates a VWAP starting at that date and time.
Once you have selected how you want the VWAP calculated – you can adjust the Standard Deviation band multiplier and toggle a vertical marker on and off which marks where the VWAP calculation begins with a date label.
When calculating the Standard VWAP – that VWAP is unique to the chart and aggregation it is plotted onto. With the Auto Cycled VWAP, you can switch between similarly sized time frames and the VWAP value has a high tendency to be the same value. Differences in the VWAP’s value come from a natural generalization in prices at larger aggregation periods. This becomes useful when using a mutlitimeframe strategy style (MTF). Selecting two lengths for Auto Cycled VWAPs will maintain better information on both VWAPs when viewed then on different time frames and aggregation types.
Here’s an example of how the Auto Cycled VWAP can maintain its values across aggregation types and amounts.
If VWAP is a tool you’re interested in, then this is probably a tool you’ll want to have in your toolbox.