Weighted Close

The weighted close indicator is a simple average of each day's price, (high, low, close,) information. As its name implies, extra weight is given to the closing price, while still being influenced by the high and low for the period.

Weighted Close = {(close * 2) + high + low} / 4

One of the simplest ways to reduce noise from the market is to use a weighted close, which results in a single line chart. It's a slight improvement over using the closing price only, as it at least takes into account the high and low for the period. 

The indicator by itself doesn't generate any trading signals. Other more classic tools are required to analyse the resulting line, but it does provide a clearer sense of what the market may or may not be doing.

In the example below, it appears that the market is correcting a bull market trend after peaking at 3475. A break of the trend line would constitute a sell signal to some traders.

Market correcting a bull market trend chart

© Copyright 2003 CQG, Inc. All rights reserved worldwide

The same contract has been charted below as a standard open, high, low, close, bar chart, complete with trend line. The same signal will be generated on this chart although potentially on a different basis. There is also a slight variation in where the trend line actually resides. 

A sell signal could be generated on an intra day basis only to have the market close back above the trend line and therefore fail to generate a sell signal using the weighted close as a basis. That may or may not be advantageous.

The beauty of the weighted close line is reflected in the following situation. If the close was above the trend line, the low was the result of a decent probe below the trendline and the high wasn't far above the trend line. That information would probably result in a weighted close being below the trendline, even though the actual close was above the trend line. Once again that may or may not be advantageous.

Weighted close line chart

© Copyright 2003 CQG, Inc. All rights reserved worldwide

Disclaimer
© The MacLean Group Pty Ltd ACN 096 967 038. All rights reserved 2003. This article has been prepared by The MacLean Group and licensed to ASX. The views are those of the author and not of ASX. This material is educational and it is not intended to constitute financial advice.