Moving average and weighed moving average. Report your findings

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Moving averages are favoured tools of active traders to measure momentum. The primary difference between a simple moving average, weighted moving average, and the exponential moving average is the formula used to create the average.

simple moving average (SMA)

A moving average is a technique to get an overall idea of the trends in a data set; it is an average of any subset of numbers. The moving average is extremely useful for forecasting long-term trends.

The simple moving average (SMA) was prevalent before the emergence of computers because it is easy to calculate.

A moving average is calculated from the average closing prices for a specified period.

For a simple moving average, the formula is the sum of the data points over a given period divided by the number of periods.

A five-period moving average, based on the prices above, would be calculated using the following formula:

weighed moving average

A Weighted Moving Average puts more weight on recent data and less on past data. This is done by multiplying each bar's price by a weighting factor. Because of its unique calculation, WMA will follow prices more closely than a corresponding Simple Moving Average

Weighted moving averages assign a heavier weighting to more current data points since they are more relevant than data points in the distant past. The sum of the weighting should add up to 1 (or 100 percent).

The weighted average is calculated by multiplying the given price by its associated weighting and totalling the values. The formula for the WMA is as follows:

orchestra answered 1 year ago

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