Weighted Moving Average
Type
Trend indicator
Short introduction
In contrast to the simple moving average (MA), the Weighted Moving Average (WMA) assigns a higher importance to the current prices compared to older values. The idea behind this is that the current development will have a stronger impact on the future development than values in the past.
Statement
To give greater importance to recent developments, the increase and decrease of the weighting factor is linear. The WMA is determined by multiplying each previous day by a weighting factor. For a calculation over 5 days, for example, the first day is multiplied by a factor of 5, the second day by 4, and so on.
The last day then has a weighting factor of 1. The sum of the individual results is then divided by the sum of the weighting factors.
The weighted MA is thus closer to the current price trend than the simple MA, and thus indicates changes in direction more quickly.
Formula/calculation
WMAt = (W1Ct + W2Ct-1 + W3Ct-2 + ... + WnCt-n+1) รท (W1 + W2 + ... + Wn)
where:
WMAt = Current value of the weighted MA
Interpretation
Default setting
- MA period: 9 periods