VAMA - Volume Adjusted Moving Average
Volume Adjusted Moving Average – VAMA. It is a special type of Moving Average that takes into account not just the time period, but also the Volume of single days. Days with higher Volume are more important than the others.
In various articles we can also find the expession VWAP – Volume Weighted Average Price.
Volume Adjusted Moving Average calculation:
VAMA = ∑ (price * volume) / ∑ volume
For Shares trading:
VWAP = ∑ (price * number of Shares bought) / ∑ number of Shares bought
Example: If we calculate 4-day VAMA:
1. day: Price = 100; Volume = 10000
2. day: Price = 101; Volume = 15000
3. day: Price = 103; Volume = 7500
4. day: Price = 107; Volume = 25000
then the VAMA calculation looks like follows:
[(100*10000) + (101*15000) + (103*7500) + (107*25000)] / (10000+15000+7500+25000) = 103.69
There is a theory behind trading, that if you have got the possibility to Buy an asset for a price lower than the VWAP is, then you can make a profitable trade. Should the Share price be higher, then it wouldn't be so profitable. But it isn't any universal rule. The profitability of Shares would be determined mostly by the number of days implied in the calculation of VAMA. It means that the indicator signalizes that going Long is just more advantageous than it was within the last x days. It isn't about prediction, just about historical prices.
If you are interested in a deeper study of this technical indicator and prefer ready to serve solutions, this section may be of interest to you. There you can find all the available indicators in Excel file for download.