The Weighted Close indicator (WCI) is the average of High, Low, and doubled Closing prices. The same as in Typical Price, Weighted Close is the technical tool that measures the mean change in a security’s price. The Weighted Closed indicator’s main purpose is to filter the Moving Average System.
The Weighted Close indicator generally comes out with an average of each day’s price. The name suggests the fact that extra weight is given to the closing price. The Median Price and Typical Price are almost similar indicators. The result is the average price along with extra weight given to the closing price. This is the exact meaning of weighted close.
This indicator can only provide a clear, concise yet simple picture of the current trend prevailing in the market. In the trade signals of WCI, traders must use other typical trade signal-generating techniques like support or resistance, trend lines, chart patterns, etc. This indicator can also be used to filter moving averages like identifying trends. In WCI must be compared to a moving average.
Weighted Close = ((Closing Price * 2) + High Price + Low Price) / 4.
Closing Price = The Price of Particular security at the end of a day of the WCI.
High Price = The Highest Price of a Particular Security for the Trading Period under consideration of this indicator.
Low Price = The Minimum Value of a Particular Security for the Trading Period under consideration of the Weighted Close Indicator.
How to Attach the Weighted Close Indicator on Charts?
On Zerodha Kite
If traders want to attach the Weighted Close indicator, then they can go through the STUDIES section of Zerodha Kite. This indicator is also available in Kite Mobile App. The Period is 14. If you want to change the value then you can change the value to high or low. The attachment process of the indicator to Reliance Industries’ share price chart is as follows. Charts include various time limits, daily, weekly, monthly, or intraday.
On Upstox Pro
Check how the indicator looks on the Upstox Pro platform.
Features of the Weighted Close Indicator
The weighted close indicator is reflecting the average of each day’s price through the line. The name of the indicator itself suggests its features of it and helps to weigh the closing price. In simple words, it gives greater weight to the closing price. Last, but not the least, the indicator provides an accurate picture of a particular session closing price.
Key Points of the Indicator
- Traders use the weighted indicator, Smooth Line, to Plot a Price Chart. The Line chart of this indicator is very easy to draw and is easy to understand and act as compared to other kinds of charts and patterns.
- Weighted Close indicator is a typical way to view price data. This gives more importance to the closing price by multiplying the closing price by two in the formula.
- High and Low are given equal importance to this indicator. You can plot the outcome of this formula of the Weighted Close indicator over a single-line chart.
- A single-line chart of this indicator gives a precise and concise picture of the market.
- Traders frequently use the Weighted Close Indicator as an indicator to determine the Primary Trend.
- Mainly, it cannot be used or should not be utilized as a trade signal generator which is using the WCI to actuate Buy or Sell signals.
How to Use the Weighted Close Indicator?
Signals Based on Crossover
High and Low are two extremes that aren’t as important as the closing price of this indicator. That’s why the Weighted Close indicator multiplies the closing price by two to reduce the impact of irregularities on High and Low prices. Here, I choose the overlay option. Once the price crosses the WCI above, take a buy signal. Oppositely, a crossover below the WCI generates a sell signal.
Using a MACD with the Weighted Close Indicator
The next strategy is with the MACD indicator. Here, I add MACD along with WCI. I take the buy signal once the price is above WCI and fast MA crosses the slow MA from below. Reversely, in the opposite scenario, a sell signal comes.
Trading the Divergence
As we know the divergence occurs when the price and the indicators move in exactly the opposite direction. Now, look at the picture below. Here, the 14 periods Relative Strength Index made a higher high when the price made lower lows. In that scenario, the price will move in the direction of the indicator. Just like the picture below. Here, the price and the indicator moved in the opposite direction and later the price followed the indicator’s direction.
Advantages and Disadvantages of the Weighted Close Indicator
- WCI mainly provides a simple yet concise view of the whole day.
- This indicator applies double weight to the Closing Price, which results in smooth data for the whole trading period.
- Also, one cannot use WCI to actuate buying and selling yet it can be handy in determining the primary trend.
- This indicator enhances smoothness in a trading chart. You can use this as a filter for various moving averages including EMAs.
- The calculation of the Weighted Close Indicator counts the figure of the Closing Price twice. Also, the Closing Price carries more weight than extreme prices like High or Low prices but can be misleading on some occasions. The indicator doesn’t provide clear trading signals. The maximum of traders prefers other indicators over WCI only because of its lagging nature.
- In order to generate trade signals of WCI, traders must use moving averages along with Weighted Close to determine the direction of the future trend.
In conclusion, the Weighted Close indicator pays double the weight to Closing Price which is the main difference between it with the Closing Price indicator. This Weighted Close uses the double figure of the closing price to bring smoothness and simplicity to the calculation. Finally, this eases the procedure of interpreting the outcome which is the Average Price of security for one day.
Excellent article. Thank you so much for posting this.