Weighted Moving Average

The Weighted Moving Average (WMA) places more importance on recent price moves; therefore, the Weighted Moving Average reacts more quickly to price changes than the regular Simple Moving Average.

Weighted Moving Average (WMA)

The Weighted Moving Average (WMA) is a technical analysis indicator that smooths the price series.  It places more importance on recent price moves; therefore, the Weighted Moving Average reacts more quickly to price changes than the regular Simple Moving Average. 

 


Weighted Moving Average Formula

The weighted moving average is calculated by taking the sum of all the closing prices over a specific time period, weighting them by the position of the data point, then dividing by the sum of the number of periods.



For example, in a six-day linear weighted average, today's closing price is multiplied by six, yesterday's by five and so on until the first day in the period range is reached. These numbers are then added together and divided by the sum of the multipliers.

Application of Weighted Moving Average

Weighted moving averages assign a heavier weighting to more current data points since they are more relevant than data points in the distant past. 

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