What Is The Elastic Volume Weighted Moving Average & How To Trade With It

The Elastic Volume Weighted Moving Average a.k.a. eVWMA is a type of moving average. It uses volume to measure the period of moving average.

Christian P. Fries introduced the eVWMA to replace the standard moving averages. He gave the concept that moving averages should be volume-weighted. He called it the N-volume weighted moving average, where N is the averaging period like the number of days.

This gave him two volume-weighted moving averages; Standard Volume Weighted Moving Average and Elastic Volume Weighted Moving Average.

What is the Elastic Volume Weighted Moving Average?

By using N-volume, the author described eVWMA as an approximation to the average price paid per share. The indicator is timeframe independent and symbol independent. This means that you can switch timeframes and symbols without changing the volume period.

Elastic Volume Weighted Moving Average on a chart
Elastic Volume Weighted Moving Average on a chart

The formula of the indicator is:

eVWMA = [(N – v) * eVWMA.1 + v*p] / N

where p = price

v = volume of bar

N = volume period. This period can either be specified (as a constant value) or computed as a multiple of the recent average volume.

There is no specific time limit for the eVWMA because it provides an average volume-weighted calculation.

On MT4, you can set the eVWMA according to default or change the value of the period.

Elastic Volume Weighted Moving Average parameters
Elastic Volume Weighted Moving Average parameters

How to use the Elastic Volume Weighted Moving Average?

The eVWMA works similarly to traditional moving averages. But, as the eVWMA is volume-weighted, it has an extra feature compared to the basic moving averages. It is often common to use eVWMA as a trend indicator.

The eVWMA generates signals as all other moving averages.

When the price jumps up, crossing the eVWMA from below, this is a sign of an uptrend, and we may look for buy signals. In this case, the bullish pattern occurs.

Conversely, when the price goes down crossing the eVWMA from above, this is a sign of a downtrend, and we could look for sell signals. Here, the bearish pattern appears.

The divergence between the eVWMA and the price is an indication of oversold and overbought conditions. Bullish divergence appears for overbought and bearish divergence occurs for the oversold condition.

Elastic Volume Weighted Moving Average buiish and bearish divergence
Elastic Volume Weighted Moving Average buiish and bearish divergence

When the market is ranging (the price of an asset is making same highs and lows several times), we can buy when the price crosses above the eVWMA and sell when it crosses below the eVWMA. But this technique can cause a whipsaw (when the price is moving in one direction but suddenly moves in the opposite direction).

Elastic Volume Weighted Moving Average trading strategy

We can use the eVWMA for short-term and long-term trading strategies.

For long-term approaches, we could combine the eVWMA with EMA (exponential moving average). This can help to predict the potential forecast of the market.

One of the popular trading strategies is to use the eVWMA with the MACD (moving average convergence divergence).

When the MACD crosses above the 0 level, it indicates the bullish pattern. On the other hand, when the MACD crosses below the 0 level, it signifies a bearish trend.

Elastic Volume Weighted Moving Average buy strategy

  • The price bar must cross the eVWMA from below.
  • Wait for the price bar to go bullish.
  • Set a stop-loss near the low swing area.
  • Exit when the eVWMA drops.
Elastic Volume Weighted Moving Average buy setup
Elastic Volume Weighted Moving Average buy setup

Elastic Volume Weighted Moving Average sell strategy

  • The price bar must cross the eVWMA from above.
  • Wait for the price bar to go bullish.
  • Set a stop-loss near the low swing area.
  • Exit the trade when the eVWMA rises.
Elastic Volume Weighted Moving Average sell setup
Elastic Volume Weighted Moving Average sell setup

 

Elastic Volume Weighted Moving Average Conclusion

The Elastic Volume Weighted Moving Average is an alternative to the standard moving average. The indicator can be helpful for trend trading. When the market is trending, you can catch pullbacks (a pause or a drop in the price of an asset within a continuing period) towards the eVWMA.

The Elastic Volume Weighted Moving Average indicator can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.

I would prefer to use the majority of technical indicators such as the Elastic Volume Weighted Moving Average indicator on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.

The Elastic Volume Weighted Moving Average indicator is just one indicator amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Elastic Volume Weighted Moving Average indicator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Elastic Volume Weighted Moving Average indicator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!