Pocket Option trading platform offers numerous valuable tools and one of them is WMA. WMA stands for the Weighted Moving Average.

In this blog, we will explore, What is a Weighted Moving Average, What is Weighted Moving Average used for, How is Weighted Moving Average calculated, What’s the difference between a Weighted Moving Average and a Simple moving average.


What is a Weighted Moving Average?

WMA or Weighted Moving Average is a trend analysis tool that is used by traders to find and analyse the security price movement.

This indicator assigns weight to the most recent closing price of the security and the highest weight is assigned to the most recent closing price and lowest weight to the oldest one.

What is the Weighted Moving Average used for?

Weighted moving average is a valuable tool and can be used for multiple purposes.

  • Trend identification: WMA helps traders identify the trends and reversals of a security price. A rising WMA line indicates an uptrend while a falling WMA line indicates a downtrend.


  • Entry and Exit points: When the price and the Moving average line intersect each other traders can use those opportunities to find the best entry and exit points.


  • Set Stop loss and Risk profit: Once you have found a good entry and exit points you can now use the WMA indicator line to determine the perfect stop loss and risk profit.


  • Indicator combinator: You can use a solo WMA Indicator on the Pocket Option chart but for perfect results, You should use the indicator with other trend indicators like RSI, Parabolic SAR & more.


How to add WMA on the Pocket Option?


In order to add the WMA indicator on the Pocket Option platform follow the steps given below

Step 1: Login to your Pocket Option account. In case you don’t have one click here

Step 2: Click on the indicator button at the top of the page

Step 3: Search for the moving average line in the indicator list

Step 4: Click the indicator moving average name and select WMA as a type from the drop-down menu.


How is Weighted Moving Average Calculated?

As a trader you don’t need to calculate the WMA of a security still for your knowledge Here’s how it is done.

Step 1: Determine the Period

Firstly you need to determine the Period for instance, You want to find the WMA for the last 3 days of Amazon.

Let’s say the closing price of the last 3 days of Amazon is 10, 15, 16.

Step 2: Weight Factor

After determining the periods we need to now determine the weight of each number. The most recent closing price will be awarded the highest weight while the oldest price will be awarded the lowest weight.

Day 1: 1/6

Day 2: 2/6

Day 3: 3/6

Note: Here we got 6 by adding (3 + 2 +1) which is the number of days.


Step 3: Multiply the Weight Factor with Closing price

Next, multiply the closing price with the Weighting factor.

10 * 1/6 = 1.666

15 *2/6 = 5

16*3/6 = 8


Add up the closing price

Lastly, Add up the closing price to get the WMA of Amazon asset.

WMA of Amazon for the last three periods = 1.666 + 5 + 8 = 14.666.


How to trade with a Weighted Moving Average Indicator?

Trading with WMA or Weighted Moving Average indicator is not a big deal you just need to focus on the intersection of price and the WMA indicator line.


When the WMA Indicator line intersects below the price it signals a bullish trend and you can use this opportunity to place a buy trade.


Similarly, when the WMA line intersects above the price it signals an upcoming bearish trend and here we can place a sell trade.

What’s the Difference between a Weighted Moving Average and a Simple Moving Average


Price WMA emphasise on the most recent closing Price


SMA treats all price data equally.


Sensitive WMA is very sensitive to the price as it takes the most recent closing price.


SMA is least responsive to the recent price changes due to its equal-weight approach


Calculation The Calculation of WMA is a bit complex


The Calculation of SMA is very easy


Reliable WMA indicator is highly reliable as uses the most recent closing price


SMA Indictaor is not as reliable as WMA


Smoothing effect WMA provides a smoother line effect on the chart making it easier to identify trends.


Can exhibit fluctuations making it harder to spot trends


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