Weighted Moving Averages

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 days' data by a weight.

The following table shows an example of the calculation of a five-day weighted moving average. The weight is based on the number of days in the moving average. The weight on the first day is 1.0 while the value on the most recent day is 5.0. This gives five times more weight to today's price than the price five days ago.

Five-Day Weighted Moving Average

Day No.

Weight

 

Price

 

Weighted Average

       

1

1

x

25

=

25

       

2

2

x

26

=

52

       

3

3

x

28

=

84

       

4

4

x

25

=

100

       

5

5

x

29

=

145

       

Total:

15

x

133

=

406

/

15

=

27.067

Sample Chart

In the following example, the Weighted Moving Average line is the orange line.

The strategies described in this article are for information purposes only, and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision. Securities are subject to market fluctuation and may lose value.