THE HAnDbook of TEcHnIcAl AnAlySISlower than for a five-period simple moving average, which is (100 percent /5) =
20 percent. The price that influences the moving average the most is $5, since
it has the greatest volume, as it has a percentage contribution of (2500/4800) ×
100 percent = 52 percent to the most recent value of the volume-weighted mov-
ing average.
Figure 11.14 shows what happens when volumes for each period are all equal.
It basically reverts back to a simple moving average of price. This is important, as
it makes the use of VWAP on constant volume charts pointless. A simple moving
average of price would achieve the same result.
See Figure 11.15 for a comparison of VWAP with a standard SMA of the same
periodicity.
Figure 11.16 shows VWAP acting as support and resistance. Prices below
VWAP are considered bearish, whereas prices above VWAP are considered bullish.
(6) Wilder’s averaging Method Welles Wilder introduced a form of averaging
that he uses with his indicators in his book New Concepts in Technical Trading
figure 11.13 Calculating the VWAP.
figure 11.14 Calculating the Equivolume VWAP.