WILDER'S Moving Average by fr3762 KIVANC

The WILDER'S Moving Average indicator provides a smoothed trend-following line based on Welles Wilder’s unique smoothing method to identify market momentum and potential reversal points with significantly less lag than a standard simple moving average.

Usage

The Usage section focuses on how this indicator assists in trend identification and trade execution. The script visually distinguishes market conditions by changing the color of the moving average line based on its slope.

• Trend Identification: When the Wilder's Moving Average (WMA) is colored green, it indicates an upward slope, suggesting a bullish trend. When the line turns red, it indicates a downward slope, suggesting a bearish trend.
• Price Crossovers: Traders can look for price interactions with the WMA. A bullish signal is generated when the price closes above the moving average, while a bearish signal is generated when the price closes below it.
• Dynamic Support and Resistance: In a trending market, the WMA often acts as a dynamic support level during an uptrend or a resistance level during a downtrend. Traders can use these zones to look for trend continuation entries.
• Alerts: The script includes built-in alert functionality that triggers when the moving average changes direction, allowing users to stay informed of trend shifts in real-time.

Details

Welles Wilder introduced this smoothing method in his 1978 book, “New Concepts in Technical Trading Systems.” While similar to an Exponential Moving Average (EMA), the Wilder’s Moving Average uses a different smoothing constant.

In a standard EMA, the smoothing factor (K) is typically calculated as $2 / (N + 1)$. However, Wilder’s formula utilizes a constant of $1 / N$. This results in a moving average that is more responsive than a Simple Moving Average (SMA) but provides a smoother output compared to a standard EMA of the same length. The mathematical calculation implemented in this script is: $WilderMA = PreviousWilderMA + (CurrentPrice - PreviousWilderMA) / Length$

This specific weighting makes it particularly effective for technical indicators developed by Wilder, such as the Relative Strength Index (RSI) and the Average True Range (ATR).

Settings

• Length: (Default: 14) Determines the lookback period used for the smoothing calculation. Higher values result in a smoother line that is less reactive to short-term price noise, while lower values make the indicator more sensitive to recent price changes.

FAQ

How does Wilder's Moving Average differ from a standard EMA? While both are exponential in nature, Wilder’s Moving Average uses a smoothing factor of $1/N$, whereas a standard EMA uses $2/(N+1)$. This makes the Wilder's version react more slowly to price changes than an EMA of the same period, providing a "smoother" appearance.

Can I use this indicator for crossover strategies? Yes, you can apply two instances of the indicator with different lengths (e.g., a short-term and a long-term length) to identify "Golden Crosses" and "Death Crosses" based on Wilder's smoothing logic.

How can I access the WILDER'S Moving Average? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.