A weighted moving average multiplies each bar’s closing price by a “weighting factor” based on the umber of bars in the average (its “look back period” or “period length”). The most recent close receives the heaviest weighting and thus has the greatest impact on the moving average value. Each previous day in the average is weighted progressively less.
The sum of the weighted closes is then divided by the sum of the weighting factors over the period to derive the WMA value. It shows how a five-day weighted moving average would be calculated, and how it compares to a five-day simple moving average.
The most recent day is given a weight of 5, the next most recent day a weight of 4, the next day a weight of 3, and so on. (The most recent close in a 20-day WMA would be weighted by 20, the previous day would be weighted by 19, etc.) The closes are then multiplied by their respective weighting factors. These results are added together (216.25) and then divided by the sum of the weighting factors (in this case, 15). The result is a five-day WMA value of 14.42, compared to a SMA value of 13.
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