Great question! Both WMA (Weighted Moving Average) and VWMA (Volume Weighted Moving Average) are types of moving averages used in technical analysis, but they differ in how they weight the data points in the calculation.

Weighted Moving Average (WMA)

• Definition: WMA assigns a linear weighting to each data point within the chosen period, with the most recent data points given more weight.
• Calculation: The most recent price gets the highest weight, and the weights decrease linearly for older prices.
• Purpose: It smooths price data while giving more importance to recent prices, making it more responsive to recent price changes than a simple moving average (SMA).
• Use: Helps traders identify trends with an emphasis on recent price action.

Volume Weighted Moving Average (VWMA)

• Definition: VWMA weights each data point by the trading volume associated with that price.
• Calculation: Each price is multiplied by its corresponding volume, summed over the period, then divided by the total volume over that period.
• Purpose: It gives more importance to price points where trading volume was higher, reflecting the price levels where most trading activity occurred.
• Use: Useful to understand price trends with volume context, often considered more indicative of market sentiment because it factors in volume.

Key Difference

• WMA weights prices by time recency only.
• VWMA weights prices by the volume traded at each price, integrating volume data into the average.

Summary Table

If you want, I can also provide examples or chart illustrations to show how they differ visually.

Sources

1. Investopedia - Weighted Moving Average (WMA)
2. Investopedia - Volume Weighted Moving Average (VWMA)
3. TradingView Blog - Moving Averages Explained

Disclaimer: This explanation is for educational purposes and not financial advice. Always do your own research before trading.