Volume-Weighted Price Displacement Oscillator for Impulse and Reversion

Summary

The Volume-Weighted Price Displacement Oscillator measures how far the current close is from a rolling volume-weighted average price, then divides that difference by rolling price volatility. This produces a z-score-like reading centered on the VWAP anchor: values near zero indicate price near that reference, while larger positive or negative readings mark directional displacement. The described defaults use separate windows for the VWAP, volatility estimate, and signal-line smoothing.

The document interprets readings beyond ±1 as impulses and readings beyond ±2 as exhaustion. It suggests using sustained impulse readings to support trend continuation and exhaustion readings that turn back toward zero as possible mean-reversion cues, with confirmation from price structure or other signals. It also advises treating exhaustion as a reason to assess risk rather than an automatic reversal trigger. The text describes intended use and example markets and timeframes, but supplies no backtest results or quantitative evidence validating its thresholds across instruments or regimes.

Key ideas

• The oscillator normalizes the close’s distance from rolling VWAP by recent price volatility.
• Readings beyond ±1 are classified as impulses, while readings beyond ±2 indicate potential exhaustion.
• Sustained impulse readings may help confirm continuation, while turning exhaustion readings can prompt a search for reversion setups.
• The suggested thresholds and uses are not supported by reported backtests, so they require independent validation.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.