InvestorQ : How are volume adjusted moving averages (VAMA) measured and what do they indicate?
Debbie Mascarenhas made post

How are volume adjusted moving averages (VAMA) measured and what do they indicate?

Answer
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Crowny Pinto answered.
1 year ago


With time-based moving averages the period determines how many bars are used to calculate the average. With VAMA the prices are averaged within a specified period of Volume Increments and therefore the look back period will vary depending on how heavy/low the volume was on preceding bars. Because of this, new data being added to the chart can cause the moving average to change through all past data. Let us see firstly how the VAMA indicator works?

Richard W. Arms who developed the VAMA indicator has suggested using a Volume Increment of 55 to determine if the stock is strong or weak. Strong stocks tend to stay above this average and weak stocks below. That is the cut off level to be considered.

To reduce the number of short term price / VAMA crossovers (whipsaws) a smaller Volume Increment VAMA can be plotted and used in conjunction with the larger Volume Increment. Potential trading opportunities would occur when the averages cross each other. Here the crossover logic is the same as the SMA case. The buying signals are generated when the spot price crosses above the VAMA line or when the lower frequency VAMA line crosses above the higher frequency VAMA line. On the other hand, the selling signals are generated when the spot price crosses below the VAMA line or when the lower frequency VAMA line crosses below the higher frequency VAMA line.