InvestorQ : Are simple moving average and volume weighted moving average the same? Are there are any differences in interpretation?
Debbie Mascarenhas made post

Are simple moving average and volume weighted moving average the same? Are there are any differences in interpretation?

Answer
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Crowny Pinto answered.
1 year ago


Moving averages are one of the core and simplest indicators in technical analysis, and there are a variety of different versions. SMA is the easiest moving average to construct. It is simply the average or the mean of the price over the specified period. The average is called "moving" because it is plotted on the chart bar by bar, forming a line that moves along the chart as the average value changes. The moving average is based on n periods and you can use the gap at 10, 20, 50, 100 or 200. The actual cues come when the lower SMA line cuts above or below the higher SMA line.

On the other hand, Volume Adjusted Moving Averages (VAMA) are slightly different. Time-based moving averages make the assumption that all trading days are equal. Important trading days are usually associated with heavier volume. VAMA makes price and volume equal partners when computing the average. Higher volume trading days are more heavily weighted than lower volume days. Thus the signals coming from VAMA become more realistic and from a trader’s perspective they become more credible as the price trends are also supported by the volumes.