Weighted Moving Average

The illustration below will give a clear picture of how a five-day weighted moving average is calculated.

The weight is based on the number of days in the moving average. The weight on the first day is 1.0, while the value on the most recent day is 5.0. Today’s price was given five times more weightage than five days ago.

Five-Day Weighted Moving Average

Day No	Weight		Price		Weighted Average
1	1	*	25	=	25
2	2	*	26	=	26
3	3	*	28	=	28
4	4	*	25	=	25
5	5	*	29	=	29
Total	15	*	133	=	406	/	15	=	27.067

The latest prices values will have a more significant “weightage” than the older ones. It functions identically to the SMA.

 

During Uptrend: It will function as a support for the price movements.

During Downtrend: It will function as a resistance to the price movements.

Attention is given here when the Price crosses the weighted moving average.

When the Price breaks below (Go from above to below), the WMA signals a price decline.

When the Price breaks above (Go from below to above), the WMA signals a price rise.

The Challenge Faced While Using The Moving Average

To recognize the point at which the Prices cross the Moving Average.

Whether this point is necessary or not for the price movement.

Recommendation for confirmation of signals:

Usage of other oscillator-indicators, candlestick Patterns of Patterns from the Technical Analysis