Description:
The Weighted Moving Average (WMA) is a commonly used technical analysis tool in the financial markets. It is a variant of the Simple Moving Average (SMA) and the Exponential Moving Average (EMA) that gives more weight to recent data points to produce a smoother line and a more accurate picture of the underlying trend. In WMA, the most recent prices are given the most weight, while older prices are given decreasing weight. This makes WMA more responsive to recent price changes, making it useful for short-term traders who need to make quick decisions. WMA is an essential tool in technical analysis, helping traders identify market trends, potential support and resistance levels, and possible entry and exit points for trades.
Input Parameters:
- Length: Number of periods used in the calculation.
- Offset: The offset value is used to access the data of any candle or indicator concerning the current candle. For example, to access the current candle data it will use the offset value of "0", to access previous candle data "-1" offset value will be used, and access data of previous to previous "-2" will be used.
- Price Source: The specific data points (such as open, high, low, or close) from each candle in a financial chart that an indicator uses for mathematical computations, enabling the calculation of metrics like the average over a specified period.
Use Case:
- Crossovers: WMA crossovers can be used as buy and sell signals, where a bullish crossover occurs when the short-term WMA crosses above the long-term WMA, indicating a potential uptrend, while a bearish crossover occurs when the short-term WMA crosses below the long-term WMA, indicating a potential downtrend.
- Stop Loss: WMA can be used to set stop-loss orders, where traders can set their stop-loss below the WMA to minimize losses.
- Using Other Technical Indicators: WMA can be combined with other technical indicators such as Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD) and Bollinger Bands for more accurate signals. Traders must carefully analyze the market conditions and consider various factors before using the WMA in their trading strategies.
This feature can be used in:
- Market Scanner
- Strategy Tester
- Dynamic Alerts
- Multi-Factor Alerts
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.