Fibonacci Weighted Moving Average

The Fibonacci Weighted Moving Average indicator calculates a moving average where the weights assigned to each price point in the lookback period correspond to the Fibonacci sequence, providing a unique trend-following tool that emphasizes recent price action through mathematical ratios.

Usage

The Usage section describes how the script can be used to identify market trends and potential reversal points. Because the indicator assigns higher weights to more recent bars using Fibonacci numbers, it typically follows price more closely than a Simple Moving Average (SMA) of the same length.

• Trend Detection: Traders can observe the slope of the FWMA to determine the current market bias. An upward-sloping line suggests a bullish trend, while a downward-sloping line indicates a bearish trend.
• Support and Resistance: The FWMA often acts as a dynamic level of support or resistance during trending markets. Price retracements toward the line can be monitored for potential entries.
• Crossover Signals: Price crossing above the FWMA may signal a bullish momentum shift, while crossing below it may indicate a bearish shift. These signals are often used in conjunction with other technical filters.

Details

The Fibonacci Weighted Moving Average is constructed by calculating Fibonacci numbers for each position within the specified length. The script utilizes the golden ratio (PHI) and Binet's formula to determine these weights mathematically.

Unlike a standard Linear Weighted Moving Average (WMA) which increases weights linearly (1, 2, 3, 4...), the FWMA increases weights according to the Fibonacci sequence (1, 1, 2, 3, 5, 8...). This results in a weighting profile that puts significantly more importance on the most recent candles, potentially reducing lag compared to traditional moving averages while maintaining a smooth trajectory.

Settings

• Length: The number of bars used in the calculation. Increasing this value creates a smoother line that is less sensitive to short-term price fluctuations, while decreasing it makes the indicator more responsive to recent changes.
• Source: The price data used for the calculation (e.g., Close, Open, High, Low, HL2).

FAQ

How does the Fibonacci weighting affect the indicator's lag? By using Fibonacci numbers as weights, the indicator prioritizes recent price data more aggressively than a Simple Moving Average. This generally results in less lag, allowing the indicator to react faster to trend changes.

Can this indicator be used on any timeframe? Yes, the Fibonacci Weighted Moving Average is a versatile tool that can be applied to any timeframe, from intraday charts to weekly or monthly timeframes, depending on the trader's strategy.

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