Weighted moving average

A weighted moving average is a technical indicator to identify the trend and to generate buy and sell signals. A weighted moving average is a moving average where weights are used to give the latest price quotes more weight than older quotes.

A weighted moving average is more sensitive to changes in the share price compared to a simple moving average. A weighted moving average can be calculated for different time periods, a weighted moving average can be calculated for 10 days, 20 days or 200 days for example.

Weighted moving average (2 days): (120 x 2 + 118 x 1) / (2 + 1)

A weighted moving average that is calculated for more days than another weighted moving average is less sensitive to share price changes.

A weighted moving average is calculated every day, a new share price is added to the calculation and the oldest quote are removed from the calculation. Weighted moving averages can be used to generate buy and sell signals. If one calculates a longer weighted moving average and a shorter weighted moving average, a buy signal or a sell signal is obtained when the shorter weighted moving average cuts through the longer weighted moving average. The trend can be identified by the direction of the weighted moving average.