Technical analysis II

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3. Weighted moving averages

A 'weighted' moving average is one where more significance is given to one part of the data than to the rest.

For example, you might want to give the most recent data in your set of prices more significance than the earlier data since it gives a better representation of current market thinking.

A crude way of achieving this would be to double the value of your last data point and then divide by the number of time periods plus one.

A more effective and popular way with serious technical analysts is to use a weighting factor known as exponential smoothing. This gradually gives more and more significance to the latest data and therefore the latest information to enter the market.

But you will certainly need a computer program to calculate an exponentially-smoothed moving average and full details of the exact technique are beyond the scope of this course. At this stage, all you need to understand is the concept and reasoning behind weighting.

1. Average share prices 2. Moving averages 3. Weighted moving averages 4. Where to plot moving averages 5. Interpreting moving averages - the basics 6. Classic interpretation of moving averages 7. Combining short and long term moving averages 8. Moving average convergence/divergence (MACD) 9. Reversal patterns 10. Head and shoulders top 11. Head and shoulders bottom 12. Double top 13. Double bottom 14. Rounding tops and bottoms 15. Broadening formations 16. Wedge formations 17. The momentum indicator 18. The momentum oscillator 19. Rate of change indicator 20. Price minus average 21. Relative strength indicator 22. Conclusion

• Martin Pring's Introduction to Technical Analysis
• Technical Analysis Plain and Simple
• Technical Analysis of the Financial Markets
• Technical Analysis