Weighted Moving Average (WMA)

https://nous.net/intro?by=d9W8B0

This is another kind of Moving average in Technical analysis, this moving average gives more weight (importance) to recent periods compared to past periods of time.

Why should I use it?

The Simple Moving Average (SMA) which is a basic tool in Technical Analysis will apply the same importance to every period of time when it calculates the average price. This is why it is called "simple" average. If you have a SMA of 14 periods on your chart, it will consider the price action of 14 bars ago to be just as important as the current bar in the market.
The Weighted Moving average however, will apply more importance to the current time bar in comparison to past bars.
In this way the WMA can represent an average price that is stressing out the recent price activity, making it more responsive to current price changes, while still taking past performance into account.

How does it look like?

The WMA looks just like a Simple Moving average, that is, a single line on the chart which indicates average price for each period.

How does it work?

Anything that you can do with a simple moving average, you can apply to the Weighted Moving Average.
A Moving average is basically used to define the market direction, to spot possible support and resistance levels and a possible change in the market's trend.
(Notice that the exponential moving average is also considered a weighted moving average, only it applies weight exponentially as we move from one period to another, this is why we call it an exponential moving average, while the WMA is weighting the first period 1, and thereafter adding +1 to every next bar. . For example if it is a 9 period WMA, the first bar will be weighted 1, the second 2, the third 3 and so on until the current bar 9).

Example

This is an example of how you can spot a change in the market's direction using a WMA. Below is a CAD/JPY chart with a WMA. At first the market is trading under the WMA in a down trend, then the price breaks above the WMA indicating a change in the direction of the trend.

https://nous.net/intro?by=d9W8B0