Weighted Moving Average vs Supertrend
The weighted moving average scales each bar in its window by age and draws the result as a line, so it reads as direction. Supertrend sits a multiple of average true range away from price and flips sides when breached, so it holds a state and names an exit.
On a chart these look like the same kind of object: one line, following price, telling you which way things are going. They are not. One is an average of closes and the other is a stop that sizes itself to how violent the market currently is.
What each one is
The weighted moving average scales each bar by its age — newest counts most, oldest counts least — and draws the mean. The weighted moving average covers it.
Supertrend places a band a multiple of average true range from price and flips it to the other side when price closes through. Supertrend covers the rule, and average true range covers the volatility measure it depends on.
So one describes and the other decides. The weighted average reports where price has been going. Supertrend commits to a side and holds it until a specific level is breached, whereas an average commits to nothing at all.
Where they differ
Whether volatility is an input. Supertrend’s distance from price is set by average true range, so it widens in violent conditions and tightens in quiet ones without you changing a setting. The weighted average treats a 0.2 bar and a 2.3 bar identically.
Whether the tool remembers. Supertrend is long or short and stays that way through pullbacks that never reach the band. The weighted average is recomputed from scratch every bar, so two down bars turn it regardless of what came before.
Whether the line can leave the price range. The weighted average cannot — it is a weighted mean of actual closes, so it always sits among them. Supertrend deliberately sits outside them, because a stop that touches price is not a stop.
How many decisions each produces. The weighted average crosses price often. Supertrend requires a close beyond a volatility-scaled distance, so it ignores most noise by design and pays for that by giving back that distance at every genuine reversal.
Where they agree
Both lag by construction. Neither anticipates a reversal; both notice one after it has started.
Both fail in a range. When price chops sideways neither tool has anything to follow, because there is no trend to measure. The weighted line goes flat and crosses repeatedly; supertrend flips and gives back its distance each time.
Both cost a round trip when acted on — suppose $0.09 a share on a stock whose ordinary daily bar spans $4.50, which is 2% — and the line produces the more frequent occasions to pay it.
And neither is an entry timer. Whereas an oscillator claims to say when a move is stretched, neither of these claims anything about where a move ends.
Which one to use: Weighted Moving Average or Supertrend?
Run supertrend when the exit is the thing you have not decided. It names a price, sizes that price to current conditions, and holds through pullbacks. If your losses come from exiting arbitrarily, this is the tool that removes the arbitrariness.
Run the weighted average when you only need context. Above or below a smoothed line is a perfectly good filter, and it costs one setting and no interpretation.
Run supertrend when volatility on your instrument swings a lot. A tool scaled by average true range handles a quiet week and a violent one with the same numbers, whereas a fixed line does not know the difference.
And when you find yourself using the weighted average as a stop, switch. Nothing in its construction relates to how far price travels, so a stop placed there is arbitrary in a way supertrend’s is not.
What the volatility scaling actually buys
A trailing stop survives longer the wider it is set in average true ranges, and the price of that duration is give-back. Supertrend’s common default is three, so on a hypothetical stock with an average true range of $0.60 the band sits $1.80 away from price. That is room for ordinary pullbacks, and also the amount handed back when the trend finally ends.
Those numbers also show what a fixed-distance line gives up. A weighted average sits wherever the closes put it, which in a quiet stretch may be a tenth of what the same stop needs in a violent one.
The original data
Supertrend appears in 133 titles at a median of 21,388 views across 101 channels. The weighted moving average appears in only 8, at a median of 197 views across 8 channels.
Nearly seventeen times the videos and more than a hundred times the audience per video. The weighted average is close to untaught despite being a standard option everywhere, and supertrend is a well-covered tool — a gap that is about which question each answers rather than which is better built.
When the two read differently, they are not in conflict. The line says recent closes turned. The band says the move has not given back enough to matter. Both readings are correct and they answer different questions.
When it fails
The characteristic failure is entering on a supertrend flip. It is a trailing stop, and a flip means price has traveled the full band distance back from the extreme — on a hypothetical stock with a $0.60 average true range, $1.80 at the default multiple. Entering there means entering after that give-back has already happened, in the direction the previous move just failed in. As an exit the same distance is exactly the room a position needs; as an entry it is the worst available price in the setup.
A second failure is running both as confirmation. Both are trend followers on the same closes, so they agree in trends and disagree in ranges, which is the least informative pattern available.
A third is using the weighted average as a stop. It is not scaled to anything, and an outsized bar can cross it and keep going with nothing in the line to anticipate that.
A fourth is tightening supertrend’s multiple after a large give-back. The give-back example above shows what that costs, and the give-back was the price of the trend you held.
And a fifth is judging either on a sample with no range in it, which flatters both completely.
Related
The weighted moving average covers linear weighting. Supertrend covers the flip rule and the multiple. And average true range covers the volatility measure that sets the distance.
The weighted average is barely taught and supertrend is everywhere, and the gap is not about quality. Supertrend hands you an exit level; a weighted average only points a direction. Most people in front of a chart want the exit, and they have not decided it for themselves.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.