Weighted Moving Average
A weighted moving average is designed to put more weight on recent data and less weight on past data. A weighted moving average is calculated by multiplying each of the previous period’s data by a weight. The weighting is calculated from the sum of period. First, the exponentially smoothed average assigns a greater weight to the more recent data. Therefore, it is a weighted moving average. But while it assigns lesser importance to past price data, it does include in its calculation all the data in the life of the instrument. In addition, the user is able to adjust the weighting to give greater or lesser weight to the most recent period’s price, which is added to a percentage of the previous period’s value. The sum of both percentage values adds up to 100.”
If larger weight factors are used for more recent periods and smaller factors for measurements further back in time, the trend will be more responsive to recent changes without sacrificing the smoothing a moving average provides Weighted Moving Average smoothes a data series that is very important in a volatile market.