Weighted Moving Average (WMA)

Description

WMA stands for weighted moving average. It helps to smooth the price curve for better trend identification. It places even greater importance on recent data than the EMA does.

Formula

The weighted moving average is calculated by multiplying each datum in your series by a different ratio and then taking the sum of those products. Because of the complexity of calculating this moving average, an example follows.

5 day WMA.

Assume the closing prices over the last 5 days are:

The formula for the ratio that is applied to each of the prices is:

<= n, the numerator in each case is the numeral of the day number in the series. <= d, the denominator is the sum of the number of days as a triangular number. Since there are 5 days, the triangular numbers are 5, 4, 3, 2, and 1. The sum is 5+4+3+2+1=15.

Therefore the 5 Day WMA is 83(5/15) + 81(4/15) + 79(3/15) + 79(2/15) + 77(1/15) = 80.7