Like all MA, weighted moving average (WMA) helps to determine the direction of the trend, finds its reversal points, has a customizable period and shows the average price of the asset.
WMA differs from SMA in the way it is calculated. If all details have equal weight with the SMA, the WMA ranks price values. It assigns a certain weight to each value. The newer a price is, the more important it is, the older it is, the less important it is. In this case, the weight varies from each price to the previous linearly by the same amount.
For example, the last price gets fivefold weight, the previous price — fourfold, the price going before — threefold and so on. Due to this, fact the WMA responds more quickly to fluctuations in the price of the asset.
Open trades using WMA should also be in the direction of price movement. If the chart crosses the indicator from top to bottom, the price of the asset is likely to continue to fall, and you can trade to descrease. If the chart crosses WMA from the bottom up, the price of the asset is likely to continue to grow, and you can trade to increase.
