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Linearly Weighted Moving Average

The simple moving average (SMA) or arithmetic mean is the average of a predetermined number of prices over a number of days, divided by the number of entries. As opposed to that the linearly weighted moving average(LMWA) assigns more weight to the more recent closings. This is achieved by multiplying the last day's price by one, and each closer day by an increasing consecutive number.

weighted-moving-average_small

For instance, the fourth day's price is multiplied by 1, the third by 2, the second by 3, and the last one by 4; then the fourth day's price is deducted. The new sum is divided by 9, which is the sum of its multipliers.

Many forex traders use the LWMA together with the SMA. This is because they can receive buy and sell signals when these two moving averages breakout and cross.

What is more important is that they confirm trends by identifying when the SMA and LWMA move in same direction.

See also 

The moving average (SMA) and the Exponential Moving Average (EMA)

Linearly Weighted Moving Average

Moving Averages

 

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