VWAP Breadth
The Concept
The volume-weighted average price (VWAP) is an indicator that gives the average price of a security based on both volume and price. VWAP is calculated by adding up the dollars traded (price*volume) and dividing it by the total volume. Generally speaking, prices above VWAP is bullish, while prices below VWAP is bearish.
VWAP can also be used as a breadth indicator, represented by the % of stocks above VWAP (orange line in above chart). However, the raw data of daily VWAP breadth is extremely noisy and hard for traders to decipher any tradable pattern.
This script aims to address this issue by adding multiple bars of VWAP breadth together, and then calculating the mean and standard deviation (STDEV) of previous accumulated VWAP breadth values.
The Signals:
20 days of accumulated VWAP breadth shows that:
1. Big market (S&P500 or Nasdaq) rallies happen when VWAP breadth is above mean.
2. Big market selloffs happen when VWAP breadth is below mean.
3. VWAP breadth above +2 STDEV is overbought but still bullish (overbought suggests strong buying interest despite the potential for a temporary pullback).
4. VWAP breadth below -2 STDEV is oversold but still bearish (oversold suggests strong selling interest despite the potential for a temporary rebound).
5. A VWAP breadth decreasing during an uptrend forms a bearish divergence.
6. A VWAP breadth increasing during a downtrend forms a bullish divergence.
The Variables:
Users can change how many bars of data to add together. I personally use 20 bars of accumulated data in daily charts.
The STDEV lookback period has a default value of 1000 bars, and does not need to be changed unless users experience lag.
The volume-weighted average price (VWAP) is an indicator that gives the average price of a security based on both volume and price. VWAP is calculated by adding up the dollars traded (price*volume) and dividing it by the total volume. Generally speaking, prices above VWAP is bullish, while prices below VWAP is bearish.
VWAP can also be used as a breadth indicator, represented by the % of stocks above VWAP (orange line in above chart). However, the raw data of daily VWAP breadth is extremely noisy and hard for traders to decipher any tradable pattern.
This script aims to address this issue by adding multiple bars of VWAP breadth together, and then calculating the mean and standard deviation (STDEV) of previous accumulated VWAP breadth values.
The Signals:
20 days of accumulated VWAP breadth shows that:
1. Big market (S&P500 or Nasdaq) rallies happen when VWAP breadth is above mean.
2. Big market selloffs happen when VWAP breadth is below mean.
3. VWAP breadth above +2 STDEV is overbought but still bullish (overbought suggests strong buying interest despite the potential for a temporary pullback).
4. VWAP breadth below -2 STDEV is oversold but still bearish (oversold suggests strong selling interest despite the potential for a temporary rebound).
5. A VWAP breadth decreasing during an uptrend forms a bearish divergence.
6. A VWAP breadth increasing during a downtrend forms a bullish divergence.
The Variables:
Users can change how many bars of data to add together. I personally use 20 bars of accumulated data in daily charts.
The STDEV lookback period has a default value of 1000 bars, and does not need to be changed unless users experience lag.