Our VWMA Volatility Oscillator uses Volume Weighted Moving Averages to plot the volume. When the average is on the bottom then there is a chance that volatility contractions could be happening and a expansion could happen soon.
- The VWMA (Volume Weighted Moving Average) Volatility Oscillator is a technical indicator to analyze potential changes in market volatility.
- A phase of contraction is characterized by decreased market activity and a narrower price range.
- An expansion is a time of heightened market activity during which the price spectrum is growing.
What is the VWMA Volatility Oscillator?
The VWMA (Volume Weighted Moving Average) Volatility Oscillator is a technical indicator to analyze potential changes in market volatility. It plots a market’s volume using volume weighted moving averages.
Three VWMA lines make up the indicator, which tracks the volume-weighted average price of an asset over a given time frame. The lowest points of each of the VWMA lines are shown in the indicator’s bottom range.
The market is thought to be in a time of contraction when the VWMA lines are at their lowest points, implying that the price range is becoming more constrained and signaling a reduction in volatility. This might be a sign of growth or a powerful movement in either way.
When the VWMA lines are “high” around its peak, it implies that there is already a lot of volume and that the market is going through an expansion, which signals a rise in volatility. This could indicate that a significant upward or downward movement may be approaching.
Basics on Contraction and Expansion
A phase of contraction is characterized by decreased market activity and a narrower price range. This indicates that price movements’ highs and lows are becoming more evenly distributed, and the market is getting less volatile. During this phase, the price tends to trade in a small range and traders may observe a horizontal or sideways trend.
An expansion is a time of heightened market activity during which the price spectrum is growing. This indicates that price fluctuations’ highs and lows are spreading out more widely and that the market is more volatile. During this time, the price of an asset may experience significant and prolonged upward or downward volatility.
To learn more about contractions and expansions, click here.
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