The VWAP Envelopes indicator displays the Volume-Weighted Average Price (VWAP) of trades made during a certain period of time and their standard deviations. These standard deviation bands are drawn above and below the VWAP to identify the average distance of prices from the mean value, providing traders with a way to measure price volatility relative to the volume-weighted average. Each standard deviation indicates a "band" in the price range, helping traders contextualize Premium and Discount zones.

The unique characteristic of this indicator is that its calculation is not based from midnight but updates the data in a continuous mode, replacing the old data with the new one as it goes along, making it ideal for intraday trading analysis.

Using Settings

Clicking on the indicator's settings icon will open its configuration window, within which you can make several choices regarding the functionality of the indicator itself.

General

Period Mode

Allows you to define the reference period for calculating the indicator. You can choose from:

• Daily: Show the VWAP of the last n days. This provides a longer-term VWAP perspective for swing trading and position trading.

• Minutes: Show the VWAP of the last n minutes. Using the minute calculation mode gives a shorter period VWAP, allowing you to follow the price and volume movement more closely in intraday trading.

Period Value

Defines the value of the period indicated in the Mode Period setting. For example, if Mode Period is set to "Minutes," a Period Value of 60 would calculate the VWAP for the last 60 minutes.

Envelope Mode

Defines the mode of calculation for the Envelopes. You can choose between:

• Standard Deviation: The calculation of Envelopes is based on standard deviations. This measures how far prices typically deviate from the VWAP, with each band representing 1, 2, or 3 standard deviations from the mean.

• Price Percentage: The calculation of Envelopes is based on the percentage change in price. This allows you to define envelope bands based on a fixed percentage above and below the VWAP (e.g., ±2%).

Envelope Parameters

In this section you can define the parameters for Envelope calculation:

• 1st Standard Val (1UP/1DW): Defines the first envelope band around the VWAP. 1UP represents the upper band and 1DW represents the lower band. Approximately 68% of price action typically falls within 1 standard deviation.

• 2nd Standard Val (2UP/2DW): Defines the second envelope band around the VWAP. Approximately 95% of price action typically falls within 2 standard deviations, making these bands useful for identifying extreme moves.

• 3rd Standard Val (3UP/3DW): Defines the third envelope band around the VWAP. Approximately 99.7% of price action typically falls within 3 standard deviations, making these bands useful for identifying rare extremes.

Subgraphs

In this section you can change the color and thickness of the VWAP and Envelope lines. If you want to hide a standard deviation, click on Series Style and select Ignore.

• VWAP Color: Set the color of the main VWAP line

• 1UP/1DW Color: Set colors for the first standard deviation bands

• 2UP/2DW Color: Set colors for the second standard deviation bands

• 3UP/3DW Color: Set colors for the third standard deviation bands

• Line Style: Choose between solid, dotted, or dashed line styles

• Line Width: Adjust the width of the lines for better visibility

• Short Name: Customize the name displayed for the indicator

Practical Application

The VWAP Envelopes indicator is most effective when used for:

• Support and Resistance Identification: The VWAP line and envelope bands act as dynamic support and resistance levels based on volume-weighted prices.

• Identifying Premium and Discount Zones: Prices above the VWAP indicate premium zones (bullish), while prices below indicate discount zones (bearish).

• Mean Reversion Trading: When price moves to the outer bands (2nd or 3rd standard deviation), it may signal an extreme move likely to revert toward the VWAP.

• Breakout Confirmation: A sustained break above the upper envelope or below the lower envelope may indicate a strong trend beginning.

• Intraday Trading: Using minute-based VWAP allows traders to follow intraday price and volume movements with high precision.

Note: The VWAP calculated by this indicator aligns with the Daily Volume Profile VWAP only at the end of the session, since the calculation is continuous rather than based from midnight.