8.3 Weighted Moving Average

An N-day weighted moving average is an average of today’s close and preceding closes, with weighting factor N for today, N-1 for yesterday, N-2 for the day before, etc. The influence of past data thereby decreases with its age, down to nothing beyond N days.

The formula is as follows, with p1 for today’s closing price, p2 yesterday’s, etc.

      N * p1 + (N-1) * p2 + (N-2) * p3 + ... + 2 * p[N-1] + pN
WMA = --------------------------------------------------------
        N    +    N-1     +     N-2    + ... +    2       + 1

Like the EMA (see Exponential Moving Average), the WMA gives a higher weighting to recent prices than past prices, so it tracks those recent prices more closely than a simple moving average (see Simple Moving Average). The following graph shows how the weights decrease for N=15.

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