Let’s look at another indicator developed by the Aggr community: VWAP bands.
Volume Weighted Average Price (VWAP) is a great tool you can use to give yourself context on the market. VWAP identifies the average price level an asset has traded at within a defined period.
You can pay attention to how price interacts with the VWAP level to give you some clues as to whether buyers or sellers are currently in control.
In general, when price stays above the VWAP and uses the VWAP level as support, this is a good sign buyers are in control and maintaining an upward trend.
When price is consistently below VWAP and rejects from the VWAP level, it signals sellers are in control and the market trend is bearish.
The Aggr VWAP bands indicator takes the original VWAP indicator a step further by introducing standard deviation bands which help you measure volatility.
Aggr Trade Indicator: VWAP Bands
Are the bands narrowing or expanding?
You can give yourself more context on the market by looking at the shape of the VWAP bands and how they are developing.
When the VWAP bands start narrowing (coming closer together), it indicates that volatility is starting to slow down. Price fluctuations become smaller and smaller and price starts staying within a range.
What causes VWAP bands to start narrowing?
The market is indecisive – Buyers and sellers are mostly equal, which leads to fewer price fluctuations.
The asset is consolidating – Price stays within a tight range, with neither bulls nor bears taking full control.
Tension is building in the market – Both bulls and bears are anticipating a big move and are waiting for a catalyst (news, volume spikes, or price reaching certain levels).
These situations all usually end with price making a big move out of the VWAP bands.
During these times you want to look for price attempting to break out from the upper band or the lower band. The longer price has been consolidating/within narrow VWAP bands, the bigger the expansion is likely to be when the breakout happens.
Expanding bands
When the VWAP bands start to expand, it’s a good sign that volatility is increasing. Price is making bigger moves, further away from the VWAP, causing the bands to expand.
Expanding VWAP bands can indicate that momentum is starting to build in one direction. If you notice the VWAP bands expanding while price continues to make lower highs and while also failing to hold key support levels, you can feel confident that a downtrend is gaining strength.
Higher trading activity and increased volume usually come with expanding VWAP bands. These are 2 additional sources of data you can look at to confirm the strength of a developing trend.
Price reaches the bottom of the narrowing VWAP bands, the green delta arrow indicates there are more buyers than sellers in that candle. You have 2 points of information indicating price will make a move up.
Like all indicators, the Aggr VWAP bands work best when combined with other sources of context:
Check if the VWAP bands are expanding or narrowing at key support/resistance levels, this will help you confirm the strength of the trend.
Expanding bands suggest increasing volatility and trend continuation.
Narrowing bands indicate consolidation and range bound price action.
Use volume profile to give you context on where the most volume is being traded – is price currently at range highs, range lows, or the point of control? What are the VWAP bands doing at these levels?
The Aggr delta divs indicator can help you confirm who is controlling the trend when used in combination with VWAP bands.
Example: if the delta indicator is showing red arrows (sellers in control) while price makes lower highs and the VWAP bands are expanding, these 3 factors suggest that volatility is increasing while sellers are controlling the trend.
Aggr Trade Indicator Spotlight: VWAP Bands