The WMA is used to find the direction of the trend so traders can look for buying or selling opportunities in the direction of the trend. The Weighted Moving Average gives more importance to the latest data than the past data. The exponential moving average also gives more importance to the latest data, but the exponential and Weighted Moving Averages are calculated differently and will show different values on a chart. If you have watched the Exponential and Simple Moving Average videos on the Trading Rush Channel, you already know that the Exponential Moving average is faster than the Simple Moving Average. But as you can see on this chart, the Weighted Moving Average is even faster than the Exponential Moving Average in some cases. It will stick close to the candles and will show the potential trend reversal faster than the other two moving averages.

 

If the Weighted Moving average reacts to price quickly, does this mean it will give faster and better entry signals than the Exponential and Simple Moving averages? Well, that depends on what kind of strategy we create with the Weighted Moving Average.

 

Since this is a moving average, many traders will look for buying opportunities when the price is above the Moving Average because it can indicate an uptrend. And if the price is below the moving average it can indicate a downtrend, and many traders will look for opportunities to go short.

 

This is a 200 period weighted moving average, and some traders will immediately buy or close their short position when the price crosses above the 200 WMA. And traders will create a new short position or will close their long position when the price crosses below the 200 Weighted Moving Average.

 

This strategy can be good for long-term investors, but we need something better.

 

We know that the Weighted Moving Average is faster than the simple moving average, and most of you know that there is a widely used moving average strategy called the Golden Cross Trading Strategy. We even tested the Golden Cross Strategy 100 times on the Trading Rush Channel to find its win rate. The win rate we got after 100 trades was profitable. Check out the Golden Cross Video to learn more.

 

In that Golden Cross Video, we used the simple moving average. But instead of using a simple moving average, what will happen if we use the weighted moving average which is much faster. Will we get better entry signals? Well, we will find that out in the next video when we take 100 trades with it.

 

Here’s how the Weighted Moving Average Strategy goes.

 

When the 50 period Weighted Moving Average, crosses above the 200 period weighted moving average, it’s a buy signal.

 

Similarly, when the 50 period WMA crosses below the 200 period WMA, it’s a sell signal.

 

In the buy setup, set the stoploss below the 200 period weighted moving average.

 

And in the short setup, set the stoploss above the 200 period WMA.

 

Here, you can see that the 50 WMA crossed above the 200 WMA, so entry is when the crossover happened, and stoploss goes below the 200 WMA.

 

In this short setup, the 50 WMA crossed below the 200 WMA, so entry is when the Crossover Happened, and set the stoploss above the 200 WMA.

 

Now watch this.

 

This is a long Golden Crossover with the 50 and 200 simple moving averages. As you can see, the entry signal with the simple moving average is right here.

 

But if we use the Weighted Moving Averages instead of simple moving averages, you will notice that the entry signal with the WMA is much earlier.

 

Here’s a short Golden Cross Setup with the simple moving averages. The simple moving averages gave a golden cross right here.

 

But on the other hand, the Golden Cross with the WMA was at a much better price.

 

But does this mean the weighted moving average is better in the long run? Well, in the next video, we are going to test the Weighted Moving Average Golden Cross Trading Strategy 100 times, to find its win rate, and to see if the Weighted Moving Average can improve the win rate of the Golden Cross Strategy.