Weighted Moving Average (WMA)

TL;DR. The average of the last n values with weights rising in a straight line: the newest bar counts n times as much as the oldest, so the line follows a turn sooner than an SMA of the same length and stays smoother than price.

#What it measures

• Trend with less lag than an SMA. Recent bars carry most of the weight, so a WMA turns a few bars before an SMA of the same period.
• A fixed window. Unlike an EMA, nothing older than n bars counts at all. A spike leaves the average completely once it is n bars old.
• The building block of the Hull average. The Hull Moving Average is built from three weighted averages; a WMA alone is the plain version.

#Formula

#Inputs in AlgoLift

#Recommended periods

• 9 to 20 (fast): Intraday entry triggers and the fast line of a crossover pair.
• 30 (default): A balanced trend line on 5 to 15 minute bars.
• 50 to 200 (slow): Regime filters, where the line should move only when the trend does.

#Outputs in AlgoLift

#How to read it

• Price above a rising WMA: recent bars are above their weighted average, and the newest ones most of all. An up state for this period.
• Price below a falling WMA: the mirror, a down state.
• WMA against SMA of the same period: the WMA sits closer to price. When the WMA crosses its SMA twin, the most recent bars have moved away from the window's middle, an early sign of a turn.
• Flattening WMA: the newest bars are no longer pulling the average, so momentum is fading even if price has not reversed yet.

#Best in, worst in

Best in trending sessions, where reacting a few bars sooner than an SMA is worth the slightly noisier line.

Worst in tight chop: like every average, a WMA crossed by price over and over makes a crossover rule trade too often. Pair it with a trend filter or wire Re-arm when on the Entry.

#Three setups

#1. Fast WMA over slow WMA

Add two WMA nodes (for example 20 and 50) and a Crossover node reading them: fast above slow for longs, below for shorts. The Crossover fires once per cross, so the strategy takes one trade per turn without a reset.

#2. WMA as a trend filter

Compare price with a WMA(100) and AND it into another indicator's entry. Longs only above the line, shorts only below it. The weighted line lets the filter flip a little sooner than an SMA(100) after a real trend change.

#3. Pullback to the WMA

In an uptrend (WMA(50) rising, compared with its own value a few bars ago through a Bars Ago modifier), enter long when price dips to within one ATR of the WMA, with a stop below the line through Set Stop Loss.

#Common mistakes

• Expecting a different shape from an EMA. At the same period a WMA and an EMA are close; the difference is that a WMA forgets a bar completely after n bars. Pick by that, not by speed alone.
• Tuning the period too finely. A rule that works at WMA(21) and fails at WMA(20) or WMA(22) has found noise. Sweep a range and look for a plateau (overfitting in trading).
• Forgetting the source. A WMA of HL2 sits between the bar's extremes and crosses the close more often than a WMA of the close does.