Weighted Moving Average

Weighted moving averages are difficult to construct but more reliable than the simple moving averages, where the average has a tendency to “bark twice”: once at the start of the moving average period and again at the end of the period.

Weighted Moving Average Formula

A Weighted moving average (WMA) attaches greater weight to the most recent data. The weighting is calculated from the sum of days.

Example:

For a 5-day weighted moving average the Sum of Days is 1+2+3+4+5 = 15
The weighting is shown below:

 Day 1  2  3  4  5
 Price ($)  16  17  17  10  17
 Weighting  1/15  2/15  3/15  4/15  5/15
 Weighted value  1.07  2.27 3.40  2.67  5.67
 5 Day WMA  15.07

 

Weighted values are calculated by multiplying today’s price by 5/15, yesterday by 4/15, and so on. The weighted moving average is the sum of the 5 weighted values.

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