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Weighted Moving Average

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The Weighted Moving Average is an indicator that is derived from the use of SMA in an attempt to give progressively important recent contributions regarding the first period in which it is calculated. The calculation is performed by multiplying each of the closing by a weight applied progressively down the greatest weight at the end nearest. It takes the sum of all closures of the period adjusted for your weight and divides it by the total sum of weights. As a new closing is incorporated, disappears the further away from the period and weights are reassigned once again.

What is? Its main function is to smooth the data series that is calculated, allowing observe more clearly the current direction, ie trend. By your way of calculating the moving average is a follower indicator, not a leader. And it has a delay of as many sessions as shown in its period of calculation. Unlike the simple moving average, Weighted Moving Average best fits the price series to give more weight to the more recent closures and therefore is more sensitive to movements in its vicinity. Allows you to design trading systems, buying/selling automated. Establish dynamic support and resistance in different timeframes.

How is it used? Depending on the period that appears the investment it adjusts the term of calculation of the mobile average. So for short term calculation period ranges from 3 to 25 days, for the medium within 30 to 75 days and for the long run between 100 and 200 days. Its best feature is obtained with trending markets, helps apply maximum investment "lengthen profits and cut losses." In flat market or without trend its use is restricted by the large number of false signals generated. It can be used as a trend indicator for the period that to be analyzed according to their period. If prices are above the moving average will be in uptrend, if prices are below the moving average will be in downtrend. It can be used to generate buy signals when prices rise above the moving average. It generates a sell signal when prices fall below the moving average. It can be used to determine support and resistance levels of dynamic.

Formula Weighted Moving Average

For a number of data non-empty

X = {x1, x2, x3 ... xn }

Corresponding to the weights

W = {w1, w2, ..., wn },

The weighted average is calculated as follows

Source Wikipedia.org

Tips of Trading: It is possible to use a system of detection of market in trend based on three moving averages of 3,13 and 21 sessions. The market will be in lateral trend while the most short average of all is between other two, whatever their direction. The market will be in trending in the other cases and the direction of the trend has to provide the two averages longer.   

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Erick Gálvez
Author: Erick GálvezWebsite: http://www.asdforex..comEmail: This email address is being protected from spambots. You need JavaScript enabled to view it.
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