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. eVWMA is a statistical measure using the volume to define the period of the moving average. It incorporates volume information in a natural and logical way. The eVWMA can be looked at as an approximation to the average price paid per share.
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.
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 Elastic Volume Weighted Moving Average is a trend indicator that uses average volume in its moving average calculation. The user may change the input (close), multiplier and period length. 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.
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 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 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.
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