N-Monthly TWAP

The N-Monthly Time Weighted Average Price (TWAP)

The N-Monthly TWAP is the time-weighted average price (TWAP) of a security for the last N months. The TWAP is an early algorithm that was used by high volume traders to exute large orders over a specified time period. Today it is only used as a benchmark when volume data is not available.

Indicator Description

The N-Monthly TWAP (Time Weighted Average Price) is an average price that reflects how the asset’s market price has changed over time. The simplest version of a N-monthly TWAP is based on time slicing. On a time-based chart, such as a minute chart the TWAP is calculated as the arithmetic mean of all data points. On tick-based charts all data points are weighted by the bar duration.

Trading algorithms that try to match the TWAP are typically based on a uniform time-based schedule. The Volume Weighted Average Price (VWAP) calculation is today considered to have replaced the TWAP approach. Accordingly, the Current N-Month TWAP should only be used with uniform volume, or when no volume data is available. You may compare the N-Monthly TWAP output by adding it to a N-Monthly VWAP chart. On our blogs we also have posts discussing VWAPs in higher timeframes as well as different approaches to trading the VWAP.

The N-Monthly TWAP can be set to calculate for the entire period of N months. Alternatively, it can be set to calculate for custom hours such as the regular session. When a custom session is selected the TWAP calculation will pause outside the selected custom hours. In case that there is a technical break inside the selected session, please select “Technical break in session” and enter start and end time for the technical break. The TWAP further comes with time-weighted standard deviation bands. As the TWAP does not use volume information, it should be set to “Calculate” = “On price change”.

The indicator that can be downloaded here will calculate an accurate N-monthly TWAP and accurate bands when applied to high resolution charts. When used with higher timeframe charts, the plots may be one or a few ticks off the correct value.

Our Indicator Library also features the Daily TWAP, Weekly TWAP, Monthly TWAP, Daily Median, Daily VWAP, Weekly VWAP, Monthly VWAP, N-Monthly VWAP, in addition to our Premium VWAPs.

The indicator is available for NinjaTrader 8.