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Let's continue our series on technical indicators.
If somebody doesn't know what technical indicators, candles, and currency pairs are, it's better to start from the first article - Simple Moving Average. Others may proceed.
The following indicator - Weighted Moving Average - is on today's agenda.
The thing is that the simple moving average may show a trend well but is still somehow delayed after unexpected turns. Its definition will delay it, but people still wanted to respond to the current situation changes quickly. So they came up with a weighted moving average.
When calculating the average, the idea is simple: the last candles must have more weight, i.e., exert a greater influence on the result. The simple moving average contribution of each candle is the same; in еру weighted moving average, it is proportional to the proximity to the current point of time. The most recent, current candle has the greatest weight.
The weights are introduced as follows (number of calculation periods is denoted by n):
The denominator of the fraction is nothing but the sum of an arithmetic progression 1,2, ..., n
Each figure is multiplied by its weight, added to the other, and the resulting sum is divided by the sum of weights.
The calculator below calculates the weighted moving average on USDJPY candles examples with a 15-minute compression. For comparison, you can also display a simple moving average line on the graph.