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8.19 Volume Weighted Moving Average

An N-day volume weighted moving average (VWMA) is the average of the past N days closing prices, each weighted in proportion to the volume on that day. So if p1 is today’s closing price, p2 yesterday’s, etc, and v1, v2, etc similarly the volumes, then the VWMA for today is

       v1 * p1 + v2 * p2 + ... + vN * pN
VWMA = ---------------------------------
          v1   +    v2   + ... +    vN

The effect is to give greater significance to days with greater volume, making the average tend towards those days’ closing prices more. If all volumes are about the same then the VWMA becomes a simple moving average (see Simple Moving Average).

A true VWMA, the kind frequently specified for dividend reinvestment plans and other things needing an average price around a particular period, takes every price level and the volume transacted at that level. Chart doesn’t have the data needed for that and the calculation above instead effectively attributes all volume to the closing price.

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