Weighted Moving Average

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

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

Accordingly, the Weighted Moving Average is an average indicator, in the determination of which, at the initial stage, the determination of all indicators is equal to a certain member of the calculation series.

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

The weighted moving average has variations that use different calculation methods. The most common version is shown 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 it is smaller than a simple moving average, since it responds more quickly to price fluctuations.

• During sharp price jumps, the indicator line deviates significantly from the existing trend line.

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

• When entering into value determinations that differ from the market value level, WMA changes more than usual.

To improve trading efficiency, we recommend using indicators that calculate multiple moving averages simultaneously. This will allow you to more accurately assess the trend and avoid false signals.