VWAP Cloud

VWAP Cloud
– Dynamic Fair Value Zones with Standard Deviation Envelopes

This script combines a Volume-Weighted Average Price (VWAP) baseline with standard deviation envelopes to create a dynamic "VWAP Cloud."

The VWAP itself is a widely used fair-value benchmark, showing where trading activity is most concentrated relative to price. By adding volatility-based bands around it, this tool helps traders visualize how far price has moved away from VWAP and whether those deviations may represent normal fluctuations or potential extremes.

🔎 How the Components Work Together

VWAP Midline (optional): Provides the session or rolling fair value reference.

Inner Cloud (±1 standard deviation by default): Highlights areas where price is oscillating near VWAP. This zone often reflects balanced conditions, where price is neither excessively stretched nor deeply discounted relative to volume-weighted value.

Outer Cloud (±2 standard deviations by default): Marks wider volatility extremes. These can be used to study how price reacts to statistically significant deviations from VWAP—whether by consolidating, reverting, or extending trends.

Dynamic Coloring: The cloud adjusts color based on VWAP slope. A rising VWAP is shaded green, suggesting positive momentum, while a falling VWAP is shaded red, suggesting negative momentum. Neutral gray highlights the outer envelope to distinguish extreme zones.

⚙️ Inputs & Customization

Source: Select the price type for VWAP calculation (default: hlc3).

Session Reset: Choose between daily resetting VWAP (common for intraday strategies) or a rolling VWAP (continuous view).

Standard Deviation Lookback: Controls the sample window for volatility calculation.

Band Multipliers: Adjust the width of inner and outer clouds.

Midline Toggle: Show or hide the VWAP midline depending on chart preference.

Custom Colors: Configure bullish, bearish, and neutral shading to match your charting style.

📊 How to Use

Trend Context: Price trading above VWAP generally suggests bullish conditions, while trading below suggests bearish conditions.

Value Zones: The inner cloud helps visualize short-term balance around VWAP.

Volatility Extremes: The outer cloud highlights statistically stretched moves that traders may analyze for either continuation or mean-reversion opportunities.

Scalping, Day Trading, Swing Trading: The tool adapts to different styles, depending on whether you reset VWAP each session or use the rolling version.

⚠️ Notes

This script is for educational purposes only and should be combined with other confluence factors, proper risk management, and a trading plan.

It does not generate buy/sell signals on its own. Instead, it provides a framework to study price behavior relative to a dynamic VWAP-based fair value.

Please clean your chart of unrelated drawings/indicators before applying, so the plotted clouds and midline remain clear.