Linear Weighted Moving Average or LWMA

Linear weighted moving average or LWMA is a moving average tool which assigns more value to current prices and thus more responsive to latest price trends. It is less popular than simple moving average or SMA and exponential moving average or EMA. Like EMA, LWMA was also created to overcome the lagging associated with simple moving average.

Like exponential moving average, linear weighted moving average more weight to latest data, but unlike EMA this value is in linear progression (e.g.: 1, 2, 3…). Fore example in a 5-day LWMA, first day closing price is multiplied by 1, second day by 2… and latest day (5th day) by 5. Then the results are added and divided by the total weighting values (1+2+3+4+5=15). Thus the current prices get more weight at the expense of older prices. LWMA better suits as long-term indicator as the significance of weighting increases with time frame.

Linear weighted moving average is used just like EMA, most traders use LWMA together with simple moving average. Buy and sell signals can be generated at moving average breakouts and crosses. Trends are confirmed when SMA and LWMA moves in same direction.

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