Weighted Moving Average (WMA)
Weighted Moving Average (WMA) is a technical analysis tool used to identify the direction of a trend in a stock or other financial instrument. It is a type of moving average that gives more weight to recent prices in the calculation, making it more responsive to recent price changes than a simple moving average. The WMA is calculated by multiplying each of the previous closing prices within the time period by a weighting factor and then dividing by the sum of the weighting factors.
History of Weighted Moving Average (WMA)
The Weighted Moving Average (WMA) was first developed by J. Welles Wilder Jr. in his 1978 book, New Concepts in Technical Trading Systems. Wilder believed that the WMA was a better indicator of price direction than the simple moving average (SMA) because it gave more weight to recent prices. This allowed the WMA to be more responsive to recent price changes, making it a better tool for traders to use in their analysis.
Since its introduction, the WMA has become a popular tool among traders and investors. It is often used in combination with other technical indicators to identify potential trading opportunities. It is also used to identify support and resistance levels, as well as to confirm trends.
Comparison Table
Indicator | Weighted Moving Average (WMA) | Simple Moving Average (SMA) |
---|---|---|
Calculation | Multiply each of the previous closing prices within the time period by a weighting factor and then divide by the sum of the weighting factors. | Sum of the closing prices within the time period divided by the number of periods. |
Responsiveness | More responsive to recent price changes. | Less responsive to recent price changes. |
Summary
The Weighted Moving Average (WMA) is a technical analysis tool used to identify the direction of a trend in a stock or other financial instrument. It is a type of moving average that gives more weight to recent prices in the calculation, making it more responsive to recent price changes than a simple moving average. The WMA is often used in combination with other technical indicators to identify potential trading opportunities. For more information about the WMA, you can visit Investopedia, TradingView, and other financial websites.
See Also
- Simple Moving Average (SMA)
- Exponential Moving Average (EMA)
- Bollinger Bands
- Relative Strength Index (RSI)
- Moving Average Convergence Divergence (MACD)
- Stochastic Oscillator
- Average Directional Index (ADX)
- On-Balance Volume (OBV)
- Parabolic SAR
- Fibonacci Retracement