Letters To S&C  |  NOV 1998

V16:11: Letters

TRADING THE TREND Editor, In his September 1998 article (“Trading the trend”), Andrew Abraham states in the second paragraph that “the calculation uses a 21-period weighted average of the true range, giving higher weight to the true range of the most recent bar.” What does he mean by the second part of that sentence? The idea of qualifying trends in this manner appeals greatly to me, even though it may take a considerable effort to keep track of all the mathematics on a daily basis for perhaps two contracts each of 40 commodities. Being able to use a volatility indicator in a charting program would certainly help, but only if the weighting suggested by Abraham is available in the volatility function. JOHN KOCHER, via E-mail, Cleveland, OH A weighted moving average multiples a weighting factor by each close and then divides this product by the sum of the factors. For example, here’s the calculation for a three-period weighted moving average for three days’ closing prices, where today = 30, previous day = 29, and two days ago = 28: (3*30) + (2*29) + (1*28) = 176 176 / (3+2+1) = 29.333 for the three-period weighted moving average. Most technical analysis software makes use of weighted moving averages and you will usually find an explanation for it in the manual. —Editor

by Technical Analysis, Inc.