Multi VWAP from Gaps [MW]

9 февр.

Multi VWAP from Gaps[MW]

Introduction

The Multi VWAP from Gaps tool extends the concept of using the Anchored Volume Weighted Average Price, popularized by its founder, Brian Shannon, founder of AlphaTrends. It creates automatic AVWAPS for anchor points originating at the biggest gaps of the week, month, quarter and year. Currently, most standard VWAP tools allow users to place custom anchored VWAPs, but the routine of doing this for every equity being watched can become cumbersome. This tool makes that process multi-times easier. Considering that large gaps can represent a shift in market structure, this tool provides unique and immediate insight into how past daily price gaps can and have affected price action.

Settings

LABEL SETTINGS
Show Biggest Gap of Week | Month | Quarter: Toggle labels that identify the location of the biggest gaps for the selected time period.
Show Big Labels: Toggle labels from showing the date and gap size to just showing a single letter (W/M/Q/Y) designating the time period that the gap is from.
Hide All Labels: Turn labels off and on.

MAX VWAP LINES
Max Weekly | Monthly | Quarterly | Yearly Lines: How many VWAP lines, starting from today, should be shown for the specified time period. Max: 5

SHOW VWAP LINES
Show Weekly | Monthly | Quarterly | Yearly Lines: This feature allows you to remove lines for the specified time period.

Calculations

This indicator does not provide buy or sell signals. It is simply the VWAP calculated starting from an “anchor point”, or start time. It is calculated by the summation of Price x Volume / Volume for the period starting at the anchor point.

How to Interpret

According to Brian Shannon, VWAP is an objective measure of what the average trader has paid for a particular equity over a given period, and is the value that large institutional investors frequently use as a trade signal. Therefore, by definition, when the price is above an AVWAP, buyers are in control for that period of time. Likewise, if the price is below the AVWAP, sellers are in control for that period of time.

VWAPs that coincide with important events, such as FOMC meetings, CPI reports, earnings reports, have added significance. In many cases, these events can cause gaps to happen in day-to-day price movement, and can affect market structure going forward.

Practically speaking, price action can tend to change direction when a significant VWAP is hit, voiding buy and sell signals. Like moving averages, this indicator can show, in real-time, how a buy or sell signal should be interpreted. A significant AVWAP line is a point of interest, and can serve as strong support or resistance, because large institutions may be using those values for entries or exits. For a great analysis of how to use AVWAP, visit the AlphaTrends channel on Youtube here or you can buy Brian Shannon’s “Anchored VWAP” book on Amazon.

Other Usage Notes and Limitations

It's important for traders to be aware of the limitations of any indicator and to use them as part of a broader, well-rounded trading strategy that includes risk management, fundamental analysis, and other tools that can help with reducing false signals, determining trend direction, and providing additional confirmation for a trade decision. Diversifying strategies and not relying solely on one type of indicator or analysis can help mitigate some of these risks.

Additionally, in order to build the VWAP calculations, past data is needed that may not be available on shorter timeframes. The workaround is that for some longer-term VWAP lines on shorter timeframes, you may see less than the total of lines that you selected in settings. This is particularly the case with quarterly VWAP lines on the 5 minute timeframe for some equities.

Acknowledgements

This script uses the MarketHolidays library by @Protervus. Also, for debugging, the JavaScript-style Debug Console by @algotraderdev was invaluable. Special thanks to antsmuzic for helping review and debug the script. And, of course, without Brian Shannon's books, videos, and interviews, this indicator would would not have happened.