Quadratic Weighted (QWMA) MACD

The Quadratic Weighted (QWMA) MACD indicator provides a trend-following momentum analysis by applying a quadratic weighted moving average calculation to the standard MACD framework for improved price sensitivity during trending markets.

Usage

The Usage section describes how the script can be used to identify momentum shifts and trend direction. Traders can utilize this tool similarly to a traditional MACD but with the added benefit of the QWMA’s closer proximity to price action during established trends.

• Trend Identification: When the MACD line (solid line) is above the signal line, it indicates bullish momentum. Conversely, when the MACD line is below the signal line, it indicates bearish momentum.
• Crossovers: Bullish signals occur when the MACD line crosses above the signal line. Bearish signals occur when the MACD line crosses below the signal line.
• Histogram Analysis: The background area (histogram) represents the distance between the MACD and the Signal line, helping traders visualize the expansion or contraction of momentum.

Details

The core logic of this indicator relies on the Quadratic Weighted Moving Average (QWMA). As referenced by Alex Grover, the QWMA is defined as the square root of the moving average of the squared price. This mathematical transformation ensures that the moving average reacts more dynamically to price increases, potentially reducing lag during strong uptrends.

The script calculates two QWMA values (fast and slow lengths) and determines the MACD line by subtracting the slow QWMA from the fast QWMA. A Simple Moving Average (SMA) of this difference is then used to create the signal line. The visual output includes color-coded lines that change based on the relationship between the MACD and signal line, as well as their directional slope.

Settings

• Source: Determines the price data used for the calculations (e.g., Close, Open, High, Low).
• Fast Length: The lookback period for the shorter-term quadratic weighted moving average.
• Slow Length: The lookback period for the longer-term quadratic weighted moving average.
• Signal Length: The smoothing period (SMA) applied to the MACD line to create the signal line.

FAQ

What is the advantage of using QWMA over a standard EMA in MACD? The QWMA calculation places a specific mathematical weight on price action that allows the average to stay closer to the price during trending periods, potentially offering faster reaction times to trend changes compared to standard exponential or simple moving averages.

How do I interpret the color changes on the MACD lines? The MACD line turns bright green when it is above the signal line and rising, while it turns faded red when it is below the signal line or falling. This provides a visual cue for both the crossover state and the current slope of momentum.

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