What it measures

A weighted moving average is an average that trusts recent prices more than old ones, with weights that fall off in a straight line rather than the EMA's curve. Its purpose is to lag less than a simple average of the same length; its cost is that it reacts more to the last bar or two.

The calculation

WMA = (n × price 1 + (n − 1) × price 2 + … + 1 × price n) / (n × (n + 1) / 2)

For a 10-period WMA the newest bar has weight 10, the next 9, and the oldest 1; the denominator (55) is the sum of the weights. Where the EMA never quite forgets a price, the WMA forgets it completely after n bars.

Inputs and defaults

  • Length: usually chosen shorter than the equivalent SMA because the WMA is already faster. It is the building block of the Hull moving average, which uses two of them.
  • Source: close.

How it is read

As a trend line that turns earlier than the SMA. Strategies use it in the same crossover and slope rules as any other average, and in the Hull construction to get something close to zero lag.

Where it fails

Less lag is more noise: the WMA turns on moves the SMA ignores, and in a range it produces more false turns per bar. A rule tuned with a WMA is more sensitive to its length than the same rule with an SMA, which makes it easier to overfit.

How the desk reads it

When a strategy's edge changes materially between WMA and EMA versions of the same rule, the desk reads that as a sign the edge is in the smoothing, not the market. A weighted average is read like any other: by the rule around it.

In the desk's screen

Of the 614 screened strategies in the library, 47 (7.7%) use this indicator somewhere in their logic.

17 of those were gross-profitable on enough cells to reach the after-fee replay.

The count is read from the compiled code of each strategy in the library; a strategy that computes the indicator by hand under another name is not counted. The desk's own rules are not part of the count.