Volume Z Weighted Moving Average
- Indicators
- Version: 1.0
- Activations: 5
There is a strong correlation between tick volume and real volume. This is important for 2 reasons:
- Real volume is a very important indicator because, among many other benefits, it provides strong confirmations of the emergence/dissipation of trends.
- Real volume is not available in Forex, instead, one has to make do with tick volume.
Unfortunately, tick volume is highly broker dependent. Additionally, it is often not used effectively to define indicators. Virtually all indicators that
use tick volume simply use the raw tick volume data as it is presented, but this is not the proper way to use this information. A much more effective approach is to use a
z-score map, whereby, instead of using raw tick volume we instead compute the z-score of the tick volume over a set sampling period, then we use this z-score to
compute a weight. The advantage of this method is at least two fold. Firstly, it reduces the broker dependency, which is a huge problem with volume weighted
indicators. Secondly, it much more effectively emphasizes periods in the price history where the tick volume is unusually high, independent of broker. This is a feat that is
simply not possible with conventional volume weighted indicators. For example, if you've ever compared a common indicator like the SMA with its conventional volume weighted counterpart, the VWMA, you will observe that there is virtually no difference between the two. This problem has now been solved with the Volume Z-MAP Weighted Moving Average. The other issue is that volume weighted moving averages in the market currently are actually SMA with volume weighting. Volume weighted counterparts of other types of moving averages like the EMA or LWMA that are arguably more useful are generally not available.
There are 3 moving average methods that are contained in the Volume Z-MAP Weighted Moving Average:
1) VZWSMA (Volume Z-Map Weighted Simple Moving Average)
2) VZWEMA (Volume Z-Map Weighted Exponential Moving Average)
3) VZWLWMA (Volume Z-Map Weighted Linear Weighted Moving Average)
Additionally, extra inputs that are typically found in traditional moving average indicators are included with the Volume Z-Map Weighted Moving Average Indicator.
Here is the list of inputs:
Moving Average Period
Z Map Sharpness
Z Map Magnification
Z Map Bias
Weight Power
Z Map Floor
MA Type
LineColor
Line Style
Line Thickness
Applied Price
Conventional parameters are:
Moving Average Period
MA Type
LineColor
Line Style
Line Thickness
Applied Price
Unconventional parameters are:
Z Map Sharpness
Z Map Magnification
Z Map Bias
Z Map Weight Power
Z Map Floor
Description:
The unconventional parameters allows for more flexibility compared to most moving averages in the market. Below is a description of these unconventional parameters
and how they relate to the z-map of the volume.
Z Map Sharpness: Ideal value is 1.0. Z Map Sharpness tells the moving average how quickly to change from conventional moving average to volume weighted version
for any given turning point.
Z Map Magnification: Related to the sensitivity the moving average to the volume. Value will depend on the MA type, for example, if EMA is selected then
set the value to 2.0 for the VWEMA to reduce to conventional EMA when volume is low.
Z Map Bias: This input specifies the level that should be considered "high volume", in other words, the turning point, where the moving average starts to change
from the conventional version to the volume weighted version. A z-score around 0.0 will indicate normal volume, a z-score of less than -1.0
will indicate lower than normal volume, while a z-score of more than 1.0 will indicate unusually high volume. The Z Map Bias input tells the moving average
the level that the volume should surpass to be considered high.
Z Map Weight Power: Ideal value should be 2.0. Related to sensitivity the moving average to the volume.
