Linear Weighted Moving Average Indicator MT4 | MT5

The Linear Weighted Moving Average is a trend-following indicator that generates more significance to recent price data. Unlike the simple moving average (SMA), which gives equal weight to all prices the LWMA applies a linear weighted factor, enhancing its sensitivity to price changes.

• LWMA = ∑(Price.i * Weight.i) / ∑Weight.i

Where;

1. Price.i: Price at time i
2. Weight.i: The weight assigned to each price ( most recent prices have the highest weight)

Additionally, the indicator helps traders, with several trading strategies, make accurate trade decisions, such as:

• Trend identification:                                                                                                                                                                                         

- If the price crosses above the LWMA line, which is colored blue, it signals a bullish trend and a buying opportunity.

- If the price drops below the indicator's line, which is colored orange, it signals a bearish trend and a selling opportunity.

• Dynamic Support and Resistance levels:                                                                                                                                                                  

- During an uptrend, following a correction, the most recent shift in the line color from orange to blue is recognized as a support level.

- During a downtrend, following a correction, the most recent shift in the indicator color from blue to orange is identified as a resistance level.

• Potential reversal:                                                                                                                                                                                                 

- Bearish reversal: If the price falls below the last support line, it signals a potential short opportunity.

- Bullish reversal: If the price rises above the last resistance line, it signals a potential long opportunity.

1- In the CHFJPY trading example on the MT4 chart, as the price remains above the blue-line lwma, it signals the continuation of the uptrend. During the bullish movement, the indicator helps identify support levels, whenever the price rebounds from it, it signals a potential buying opportunity.

Toward the trend's end, when the price falls below the orange-line lwma alongside a break of the support line, both suggest a bearish reversal. When the price keeps dropping and breaking another support line, it confirms the start of the downward trend and provides a strong short opportunity. 

2- In the GBPCAD trading example on the MT5 chart, as the price stays below the orange-line lwma, it signals the continuation of the downtrend. During the bearish momentum, the indicator helps identify resistance levels, whenever the price bounces from it, it signals a potential short opportunity.

Toward the trend's end, when the price rises above the blue-line lwma alongside a break of the resistance line with a significant bullish candle, indicates a bullish reversal and a strong long opportunity.