Weighted Moving Average (WMA)
period = 20 (2–200) Overview
The Weighted Moving Average (WMA) enhances the traditional moving average by applying a linear weighting scheme that gives more importance to recent prices. Unlike the Simple Moving Average which treats all data points equally, the WMA multiplies each price by a weight that decreases linearly as the data gets older. This makes the WMA more responsive to recent price movements while still providing the trend-smoothing benefits of a moving average.
The weighting scheme follows a triangular pattern where the most recent price receives the highest weight (n), the second most recent receives (n-1), and so on, with the oldest price receiving a weight of 1. The sum of these weights forms the denominator, calculated as n*(n+1)/2. This mathematical approach ensures the WMA responds more quickly to price changes than an SMA while being less reactive than an EMA.
Interpretation & Trading Signals
Trend Signals:
- Rising WMA: Indicates uptrend, acts as dynamic support
- Falling WMA: Indicates downtrend, acts as dynamic resistance
- Price Above WMA: Bullish bias, potential buying opportunities on pullbacks
- Price Below WMA: Bearish bias, potential selling opportunities on rallies
Crossover Signals:
- Golden Cross: Short-term WMA crosses above long-term WMA (bullish)
- Death Cross: Short-term WMA crosses below long-term WMA (bearish)
- Price Crossover: Price crossing WMA can signal trend changes
Divergence & Reversal:
- Flattening WMA: Signals potential trend exhaustion
- Price/WMA Divergence: New price highs without new WMA highs suggests weakness
- WMA Direction Change: Early warning of potential trend reversal
Example Usage
Code examples will be available once the Rust implementation is complete.
Performance Analysis
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