The Weighted Close indicator is the average of High, Low and doubled Closing price. As the same as in style to Typical Price, Weighted Close is the technical indicator which measures the mean change in a security’s price. In this indicator, uses the high, low and closing price to determine the average of a security’s price for one day. The main difference between Typical Price indicator and Weighted Close indicator is that the later one places double weight to the Closing Price as is given to the other two likes High and Low Price of the day. Weighted Closed indicator’s main purpose is to filter Moving Average System.
If traders want to know further information about the Weighted Close indicator, then they can go through the STUDIES section of Zerodha Kite. This indicator also available in Kite mobile App. The Period is 14. If you want to change the value then you can change the value high or low. The attachment process of the Weighted Close indicator to Reliance Industries share price chart is given. Charts include various time limits, daily, weekly, monthly or intraday.
Weighted Close indicator is used 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. The outcome of this formula of Weighted Close indicator is plotted over a single line chart. A single line chart of this indicator gives a precise and concise picture of the market. Weighted Close indicator is frequently used by traders as an indicator to determine Primary Trend. Mainly, it cannot be used or should not be utilized as a trade signal generator which is using the Weighted Close indicator to actuate Buy or Sell signals.
Weighted Close indicator pays double weight to Closing Price which is the main difference between Closing Price indicator and Weighted Close indicator. In this Weighted Close uses the double figure of the closing price to bring smoothness and simplicity in the calculation and ultimately eases the procedure of interpreting the outcome which is Average Price of a security for one day. High and Low are two extremes which aren’t as important as is the closing price of this indicator. That’s why Weighted Close indicator multiplies the closing price by two to reduce the impact of irregularities High and Low price.
Example from Upstox
The specific weighted close indicator is reflecting the average of each day’s price through the line. The name of the indicator itself suggests the features of it, helps to weight the closing price. In simple words, it gives greater weighting on the closing price. The indicator provides an accurate picture of a particular session closing price.
The calculation of Weighted Close :
Weighted Close = ((Closing Price * 2) + High Price + Low Price) / 4.
Closing Price = The Price of a Particular security at the end of a day of Weighted Close indicator.
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 Weighted Close indicator.
Specification of Weighted Close Indicator :
Most of the traders are prefer using Line chart due to its simplicity while plotting and Back Testing Moving Averages, Trendlines, and Indicators. In the Line charts which display only the Day End Price can be deceptive of Weighted Close indicator. The chart of this indicator is a mix of the Simplicity of a Line chart and Scope of a Bar chart. The main cause of it uses a Single Average Value of the High, Low and Closing Price for each day.
Weighted Close indicator doesn’t generate trade signals likes Buy or Sell signals. In the Day traders cannot rely on such an indicator because it provides a primary trend. This is doesn’t result in a definite plan of action. 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, and 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.
Advantages of Weighted Close Indicator :
- WCI mainly provides a simple yet concise view of the whole day.
- This indicator applies double weight to Closing Price, which results in a smooth data of the whole trading period.
- Also, WCI cannot be used to actuate buying and selling yet it can be handy in determining the primary trend.
- This indicator enhances smoothness in a trading chart. Weighted Close indicator can be used as a filter for various moving averages including exponential moving average.
Disadvantages of Weighted Close Indicator :
- The calculation of WCI counts the figure of Closing Price twice. Also, the Closing Price carries more weight then extreme prices like High or Low Price but can be misleading on some occasions. The Weighted Close indicator doesn’t provide clear trading signals. Maximum of traders prefer other indicators over WCI only because of its lagging nature.
- In order to generate trade signals of WCI, traders are must use moving averages along with Weighted Close to determine the direction of the future trend.
Categories: Technical Indicators