Investing & Trading

VWMA Breakouts Strategy

By Samantha Baltodano


TL;DR:

The VWMA Breakouts strategy is a trading method that combines the features of a simple moving average and a volume-weighted moving average to create buy/sell signals. It's designed for swing trading in volatile markets, and the signals are generated by crossovers of the VWMA and SMA lines, with a cross above the SMA indicating a buy signal and a cross below indicating a sell signal.


What Is The VWMA Breakouts Strategy?

The VWMA Breakouts strategy is a moving average-based breakout indicator designed by Ken Calhoun for swing trading in volatile markets. Its main purpose is to combine the beneficial characteristics of a simple moving average (SMA) and a volume-weighted one. 


As the name implies, the volume-weighted moving average (VWMA) assigns different weights to the close price when calculating the moving average. A greater weight is assigned to close prices that have shown higher volume.


The indicator consists of two lines: 


  • an SMA of the close price, which acts as a trendline, 
  • and a VWMA line, being a signal line. 


By default, a 50-day VWMA and a 70-day SMA lines are calculated; these values are suggested by the author for use on 15-day 15-minute charts. 


These values as well as the type of the moving average (exponential, hull, Wilders) to be used as the trendline can be customized.


Interpreting VWMA Breakouts

When the price rises while volume is high, the VWMA line is likely to be seen moving further away from the SMA, which may be regarded as a signal for uptrend continuation. 


Trade signals are given on crossovers of the VWMA and the SMA. 


  • When the VWMA crosses above the SMA, a buy to open signal is indicated. 
  • When it falls back below the SMA, a sell to close signal is given.

Test The VWMA Breakouts Strategy

Great news! 


You can back test this exact strategy on historical data for any of your favorite symbols using TradingView. 


This strategy has already been built and all you have to do is log in and take it for a spin. You can access this indicator here.


If you’re new to back testing and to TradingView, don’t worry. I created a step-by-step guide you can follow to begin testing the VWMA Breakouts Strategy.


Summary

  • VWMA Breakouts is a moving average-based strategy designed for swing trading in volatile markets that combines the benefits of a simple moving average and a volume-weighted moving average.
  • The indicator consists of a 50-day VWMA line and a 70-day SMA line by default, with both lines representing different aspects of price and volume trends.
  • Trade signals are generated by the crossovers of the VWMA and SMA, where a cross above the SMA indicates a buy signal and a cross below the SMA indicates a sell signal.



VWMA Breakouts is just one of many strategies that Archaide automates. For a full list of strategies and studies available click here.


Like what you read? Check out the rest of our content!