Weighted Moving Average

The main flaw of the simple moving average is that each value is given equal weight in the calculation, when in fact the most valuable data is the latest market price.

The WMA indicator does not have such a flaw; it is a standard transformation of a simple moving average with selected quotes so that the latter indicator always has more weight.

Accordingly, a weighted moving average (Weighted Moving Average) is an average indicator, when determined at the initial stage, the definition of all indicators is equal to a certain member of the computational series.

A weighted moving average is also a mathematical weighted average calculated on the basis of price fluctuations over a certain period of time, with the maximum value given to the current price of a trading instrument.

The weighted moving average has modifications that use different methods of calculation. The most common option is given in the formula.

Despite some advantages of WMA, it still has a number of disadvantages:

• Slowdown at the beginning of a trend and at its end. Usually the indicator remains significant, but at the same time it is smaller than a simple moving average, since it responds to price fluctuations faster.

• When the price jumps sharply, the indicator line deviates significantly from the existing trend line.

• In trading volume, a weighted moving average gives a large number of incorrect signs and leads to losses.

• During entry into value determinations that differ from the extent of market value, WMA changes more than usual.

To increase the efficiency of trading, it is recommended to use indicators that simultaneously calculate several moving averages at once; this will allow you to more accurately assess the state of the trend and eliminate the occurrence of false signals.