Name, Sometimes Called:
Weighted Moving Average—Six Period
WMA
Moving Position Weighted Arithmetic Mean
Brief Description:
A weighted moving average applies a weighting factor
to each data value based on how recent it is: the most recent value
receives the greatest weighting, while older values receive proportionally
less weight.
Definitions, Formulas:
Begin by determining the time interval to be used.
We use n = 6 days.
Next, working backward, assign a weighting value for the past
n days as follows:
WTODAY = W6
= 6
WYESTERDAY = W5
= 5
W4 = 4
W3 = 3
W2 = 2
W1 = 1
Then, to calculate the six-period weighted moving average, multiply
each weight by that day’s closing price, sum the products, and divide
the sum by the number of values:
WMA(6) = 
where
Ci
= the ith day’s closing price
Wi =
the ith day’s weight
= the sum of the weighting factors
For a 6-period
example this would be (6 + 5 + 4 + 3 + 2 + 1) = 21
Positive Development Calculation:
For this TAI, a new positive development (NPD)
occurs when today’s closing price crosses above yesterday’s 6-day
WMA; that is, when CTODAY x+ WMA(6)YESTERDAY.
This TAI is no longer positive when today’s closing price crosses
below yesterday’s 6-day WMA; that is, when CTODAY
x- WMA(6)YESTERDAY .
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD).
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD).
History:
The WMA is one of a number of moving average TAIs.
See Moving Averages in the glossary
for the list and explanations.
This chart shows the six-day WMA indicator in use.
|
