Linear Weighted Moving Average (LWMA)
Contents
Formula
The Linear Weighted Moving Average formula is:
<math>\operatorname{LWMA}(price, N)_i = \dfrac {{\sum_{j=1}^N} {price_{i - N + j} \times (i - N + j)}} {{\sum_{j=1}^N} {j}}</math>
Unlike Simple Moving Average , where the weight of all previous bars is equal, the Linear Weighted Moving Average makes the most recent bar more important. The weight of each older bar decreases the linearly. Below is a weight chart for N = 10 (1 is the current price, 2 the previous and so on):
Usage
In Place of Simple Moving Average
The Linear Weighted Moving Average may be used exactly as Exponential Moving Average or Simple Moving Average, especially in the situation when the inertness of Simple Moving Average is cannot be ignored. Just compare LWMA(14), EMA(14) and MVA(14) applied on the same prices:
Behavior Comparing SMA and EMA
The Linear Moving Average has less inertness than Simple Moving Average. Comparing Exponential Moving Average, it considers smaller number of bars, and does not depend on the previous value, so, applied on the same prices it will always show the same value, regardless how much data is preloaded. From other side, the linear weight makes the line sharper comparing other moving averages, so at the flat market it produces more "noise".
See Also
Indicators
Simple Moving Average (MVA, SMA), Exponential Moving Average (EMA)
Articles
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