InvestorQ : How exactly does the WMA work and is it better than the SMA in pricing trend plotting?
Crowny Pinto made post

How exactly does the WMA work and is it better than the SMA in pricing trend plotting?

Answer
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Mahima Roy answered.
1 year ago


Use the WMA to help determine trend direction. It could be an indication to buy when prices dip near or just below the WMA. It could be an indication to sell when prices rally towards or just above the WMA. Either ways, the WMA can give a relatively more confident indication of the trend than the SMA due to its recent bias.

Moving averages can also indicate support and resistance areas. A rising WMA tends to support the price action, while a falling WMA tends to provide resistance to price action. This strategy reinforces the idea of buying when price is near the rising WMA or selling when price is near the falling WMA. All moving averages, including the WMA, are not designed to identify a trade at the exact bottom or top. Moving averages tend to validate that your trade is in the general direction of the trend, but with a delay at entry and exit. The WMA has a shorter delay then the SMA.

Use the same rules that apply to SMA when interpreting WMA. Keep in mind, though, that WMA is generally more sensitive to price movement. This can be a double-edged sword. On one side, WMA can identify trends sooner than a SMA. On the flip side, the WMA will probably experience more whipsaws than a corresponding SMA.