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Weighted Moving Average (WMA)

The Weighted Moving Average WMA is measured by averaging all the previous values over the given period, which is also the ongoing value. These values are weighted linearly (the oldest value gets a weight of 1, the next value gets a weight of 2, and so on up to the ongoing value, which gets the same weight as the period). Until there are enough values to fill the given period the moving average at the start of a data series is not determined.

It is important to remember that for more exaggerated weighting on the ongoing values, you may use an EMA. You could also average 2 or more WMA together.

By looking at the moving average of the price, a more general picture of the basic trends can be seen MA are useful for smoothing raw, noisy data, such as daily prices. Price data can change greatly every day without demonstrating if the price is increasing or decreasing.

Moving averages can be used to see trends; this is why they can also be used to predict if data is bucking the trend. A weighted moving average is measured by multiplying each of the previous day's data by a weight. The weight in its turn is based on the number of days in the moving average. In this example, the first day's weight is 1.0 while the value on the most recent day is 5.0. This gives 5 times more weight to today's price than the price 5 days before.

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