Weighted Moving Average WMA

Weighted Moving Average WMA

Nature is characteristic for all types of moving averages to smooth the price performance of the first and second, the time lag with which follows the basic indicator of the value curve. While the first property is desirable, the time delay caused by numerous developments of the simple moving average SMA attempts to reduce.

The simplest evolution of the SMA represents the Weighted Moving Average WMA, which performs a linear weighting of price data, recent data have a correspondingly higher proportion allocated for the indicator calculation, the elderly due to their low explanatory power a smaller share. When a WMA Linare weighting is used which means that subject to the weighting factor from the beginning to the end of a uniform change. For example, an average calculated from 10 periods we get the new course the weight 10, the second-latest the 9 weights up to the oldest course with the first weighting The products are then summed and divided by the sum of the weighting factors.


If one compares the course of the weighted moving average with the simple, it is striking that the indicator line closer to the price performance of the underlying asset is present, the delay component can be reduced and consequently turning points are tracked early. Weighted moving averages are characterized by a good combination of sensitivity and smoothing effect. Movement patterns in the underlying security be understood relatively well, but has the trend-following indicator from a fairly smooth progression, which is important with regard to the avoidance of too many false signals. The most important application of the outlined concept is seen as a signal line in the integration of indicators with a soft course (reasons in the last sentence!). Furthermore, the WMA is often also a component of signaling systems in several sections.

Order is a variation on the concept presented it at the Volume Weighted Moving Average (VWMA). The weighting factor is independent of the temporal moment, instead, the trade volume used. The mother indicator will follow high-volume trading days, a higher and those with lower volume, a lower weight. It is calculated by multiplying the sum of the prices with the respective volume and dividing by the sum of trade volume.