Stochastic Weighted Moving Averages

The Stochastic Weighted Moving Averages tool applies George Lane’s Stochastic Oscillator logic to moving average calculations to provide a price-sensitive trend-following indicator that highlights momentum shifts and potential reversals.

Usage

The Usage section describes how the script can be used to identify market trends and momentum.

Trend Identification

The relationship between the %K Weighted Moving Average (%KWMA) and the %D Weighted Moving Average (%DWMA) determines the primary trend. When the %KWMA is above the %DWMA, the market is in a bullish phase, often visualized by a green zone fill. Conversely, when the %KWMA is below the %DWMA, the market is in a bearish phase, typically shown with a red zone fill.

Momentum and Pullbacks

The indicator features a dynamic bar coloring system based on the alignment of price, the moving averages, and recent price action:

• Strong Uptrend: Solid green bars appear when price is above both MAs and making higher highs while the %KWMA is above the %DWMA.
• Bullish Pullback: Faded green bars indicate price is still above the MAs, but momentum is slowing (price is lower than the previous bar).
• Strong Downtrend: Solid red bars appear when price is below both MAs and making lower lows while the %KWMA is below the %DWMA.
• Bearish Pullback: Faded red bars indicate price is still below the MAs, but the downward momentum is stalling.

Details

The script is based on the concept of weighting price data according to its relative position within a historical range. It first calculates a Stochastic %K value for each bar. This value is then used as a weight for the source price; price points that occur at the higher end of the recent range receive more weight in a bullish context, and vice versa.

The %KWMA is the result of this weighted calculation over the specified %K Period. The %DWMA acts as a signal line, calculated as a Simple Moving Average (SMA) of the %KWMA. This approach effectively filters market noise while remaining more responsive to price extremes than a standard moving average.

Settings

• Source: Determines the price data used for the calculations (e.g., hlc3, close, or hl2).
• %K Period: Sets the lookback period for the Stochastic calculation and the subsequent weighted moving average.
• %D Period: Sets the smoothing period for the %DWMA signal line.

FAQ

How are the bar colors determined? Bar colors are determined by the interaction between the source price, the %KWMA, and the %DWMA. Solid colors represent strong trend alignment, while transparent/faded colors represent counter-trend movement or pullbacks within a trend.

Can I use this for crossover strategies? Yes, the script includes built-in logic for bullish and bearish crossovers between the %KWMA and %DWMA, which can be used to identify potential entry or exit points.

How do I access the Stochastic Weighted Moving Averages? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.