2000issue C121-5
Volume-weighted average price as a baseline for indicator construction
A last print can sit far from the prices that carried most of the session. A band model reads differently when its center is a volume-weighted average rather than a closing price.
- A volume-weighted average is built from many trades, so larger executions receive more weight than smaller ones.
- A closing price can sit outside the range that carried most of the day's volume and can misrepresent the session that actually traded.
- Bollinger Bands can be rebuilt on a volume-weighted average line, using an explicit lookback and a stated deviation multiple.
- Historical volume-weighted averages may have to be computed from the tape, so the filter is only as complete as the trade-level input.
A close can miss the session that traded
A closing price is the last reported transaction of a bar. That print can sit far from the prices that carried most of the day's volume.
When the last trade sits well outside the range that carried most of the day's volume, a close-based input can misrepresent the session that actually traded. That is marking the close: an end-of-session print outside the day's main traded range that can distort close-based calculations.
How the volume-weighted average is built
A volume-weighted average is constructed from many trades rather than from one arbitrary print. Each print is weighted by its traded size, so larger executions receive more weight than smaller ones.
Some venues replace the final print with a short-window volume-weighted average when setting the official close. They treat that average as the executable end-of-day reference.
Rebuilding a band on the volume-weighted line
Bollinger Bands are an envelope built from a moving central value plus and minus a multiple of the same series' standard deviation. The envelope can be rebuilt on a volume-weighted average line instead of closing prices, using an explicit lookback and a stated deviation multiple.
Side-by-side charts of the same name can look different when one series is the close and the other is the volume-weighted average. That difference changes how a band model is read.
The filter is only as complete as the tape
Historical volume-weighted averages are not always stored by a data vendor. They may have to be computed from the tape. The filter is only as complete as the trade-level input.
Companion fields in a quote recap
A quote-recap construction can report the volume-weighted average together with spread-to-price, trade-size, and standard-deviation fields. The same interval then also describes cost and dispersion.
Spread-to-price is the quoted spread scaled by price. It is used here as a microstructure companion to the volume-weighted average.
All readings on this track · 18 readings
- 2000Volume-weighted average price as a baseline for indicator construction
- 2001Constructing VWAP support and resistance from cumulative volume
- 2001An elastic volume-weighted moving average from a share-count lookback
- 2001Constructing an elastic volume-weighted average and volatility bands
- 2004Volume-weighted column averages and crossovers on point-and-figure charts
- 2004Session volume-weighted average for limit placement and listed routing
- 2008Building MIDAS curves from an anchored volume-weighted average
- 2008Construct a launch-point VWAP as support and resistance filters
- 2014Workstation order routing, VWAP, and session filters
- 2015Constructing price gravity and float turnover filters
- 2015Constructing four-stage cycles with anchored VWAP
- 2017Constructing a volume-weighted crossover and breakout as one swing rule set
- 2017Constructing a volume-weighted moving-average crossover
- 2017Constructing anchored volume-weighted average price maps for crowd-visible execution costs
- 2018Order book heatmaps, VWAP, and flow for execution
- 2018Constructing futures rolls ahead of first notice day
- 2019Evaluate a mechanical futures system as one procedure
- 2020Every bounce is a falsifiable regime test