What is the Wilder's Moving Average and how does it relate to WMA in crypto?

Wilder’s Moving Average smooths crypto price trends with less lag than SMA, making it ideal for volatile markets like Bitcoin and Ethereum.

Jul 31, 2025 at 11:29 am

Understanding the Wilder's Moving Average in Cryptocurrency Trading

The Wilder's Moving Average is a technical indicator developed by J. Welles Wilder Jr., primarily used in analyzing price trends across financial markets, including cryptocurrency. Unlike the traditional Simple Moving Average (SMA), which assigns equal weight to all data points, Wilder’s approach applies a smoothing mechanism that reduces the lag typically associated with moving averages. This makes it particularly useful in the fast-moving and highly volatile crypto markets. The calculation uses a recursive formula that gives more importance to recent prices while still incorporating historical data, allowing traders to identify trend direction and potential reversals with improved responsiveness.

The formula for Wilder’s Moving Average over n periods is:

• First, compute the initial value as the Simple Moving Average (SMA) of the first n periods.
• For subsequent values:
  Current Wilder MA = ((n - 1) × Previous Wilder MA + Current Price) / n

This recursive method ensures that the average adapts gradually, filtering out noise while preserving sensitivity to new price action. In the context of Bitcoin, Ethereum, or altcoin trading, this smoothing effect helps traders avoid false signals generated during sudden price spikes or dips.

Weighted Moving Average (WMA): A Comparative Overview

The Weighted Moving Average (WMA) is another type of moving average that assigns greater importance to recent data points. The weights decrease linearly, so the most recent price has the highest multiplier, the second most recent has a slightly lower one, and so on. For a 5-period WMA, the calculation would be:

(Price₁ × 5 + Price₂ × 4 + Price₃ × 3 + Price₄ × 2 + Price₅ × 1) / (5 + 4 + 3 + 2 + 1)

This structure makes the WMA more responsive to recent price changes than both the SMA and Wilder’s MA. In crypto trading, where prices can shift dramatically within minutes, the WMA can provide earlier signals for entry or exit points. However, this increased sensitivity also increases the risk of whipsaws during sideways or choppy market conditions.

Key Differences Between Wilder's MA and WMA

While both Wilder’s Moving Average and WMA aim to improve upon the SMA by emphasizing recent prices, their methodologies and applications differ significantly.

• Wilder’s MA uses a smoothing constant that recursively updates the average, resulting in a gradual adjustment to new prices. This makes it less reactive than the WMA but more stable in volatile environments like cryptocurrency markets.
• WMA, by contrast, applies fixed linear weights to a finite window of data, making it more sensitive to the most recent price movements. This can lead to faster signals but also more false alarms during consolidation phases.
• The Wilder’s MA requires only the previous value and the current price to compute the next value, making it computationally efficient over long time series.
• The WMA must recalculate the entire weighted sum for each new data point, requiring access to all n prior prices, which can be less efficient in real-time systems.

These structural differences influence how traders apply them. For instance, Wilder’s MA is embedded in several of Wilder’s other indicators, such as the Average True Range (ATR) and Relative Strength Index (RSI), which are widely used in crypto technical analysis.

Application in Crypto Trading Strategies

Traders use both Wilder’s MA and WMA to identify trend direction, generate signals, and manage risk in crypto assets.

• To apply Wilder’s MA, select a period (commonly 14), calculate the initial SMA, then apply the recursive formula for each subsequent candle.
• For WMA, choose a period (e.g., 10), assign descending weights from n to 1, multiply each closing price by its weight, sum the results, and divide by the sum of the weights.
• Plot both averages on a crypto price chart (e.g., BTC/USDT on Binance or ETH/USD on Coinbase Pro).
• Use crossovers: when price moves above the Wilder’s MA, it may signal bullish momentum; below, bearish.
• Compare WMA and Wilder’s MA: if the WMA crosses above the Wilder’s MA, it may indicate accelerating bullish momentum.

These tools are often combined with volume indicators or oscillators like MACD or Stochastic RSI to confirm signals. On platforms like TradingView, both indicators can be added via the built-in library. Navigate to "Indicators," search for "Wilder’s Moving Average" or "Weighted Moving Average," adjust the period, and apply to the desired chart.

Setting Up Wilder’s MA and WMA on Trading Platforms

Configuring these moving averages on trading platforms involves precise steps.

• Open TradingView or your preferred charting tool.
• Load a crypto pair (e.g., SOL/USDC).
• Click the "Indicators" button at the top of the chart.
• Search for "Wilder's Moving Average" — if not available by default, manually input the formula using the Pine Script editor.
• Alternatively, search for "Weighted Moving Average" and select the built-in version.
• Adjust the length parameter (e.g., 14 for Wilder’s, 10 for WMA).
• Customize the color and line style for clarity.
• Apply both indicators to compare their behavior during price swings.
• Enable alerts: right-click the indicator, choose "Add Alert," and set conditions (e.g., "WMA crosses above Wilder’s MA").

For manual implementation in Pine Script, the code for Wilder’s MA would involve initializing the SMA and then using a recursive ta.wma()-like logic with a smoothing factor of 1/n. The WMA can be coded using a loop that multiplies each price by its weight and divides by the total weight sum.

Practical Examples in Crypto Market Analysis

Consider a scenario on a 4-hour Bitcoin chart during a breakout phase.

• BTC price rises from $60,000 to $65,000 over three days.
• The 14-period Wilder’s MA shows a steady upward slope, confirming trend strength without sharp jumps.
• The 10-period WMA reacts faster, crossing above the Wilder’s MA, signaling early momentum shift.
• Later, when price consolidates around $63,000, the WMA fluctuates more, while the Wilder’s MA remains smooth, avoiding false reversal signals.
• Traders using both can apply a dual-filter strategy: enter long only when WMA > Wilder’s MA and price is above both.

This combination helps filter noise while capturing meaningful moves. On altcoins like ADA or DOGE, where volatility is higher, the stability of Wilder’s MA complements the sensitivity of WMA, offering a balanced view.

Frequently Asked Questions

What is the default period used for Wilder's Moving Average in crypto indicators?

The most commonly used period is 14, as defined by J. Welles Wilder Jr. for indicators like the ATR and RSI. This period balances responsiveness and smoothing, making it suitable for daily or 4-hour crypto charts.

Can Wilder’s Moving Average be used on intraday crypto timeframes?

Yes, it can be applied to 15-minute, 1-hour, or other intraday charts. Traders often shorten the period (e.g., to 7 or 9) to increase sensitivity while retaining the smoothing benefits.

Is WMA more accurate than Wilder’s MA for crypto trading?

Neither is universally more accurate. WMA reacts faster to price changes, useful for short-term entries. Wilder’s MA filters noise better, ideal for trend confirmation. The choice depends on trading style and timeframe.

How do I code Wilder’s MA in Pine Script for TradingView?

Use ta.rma(close, length) — the rma() function in Pine Script is Wilder’s Moving Average. For a 14-period version: wilder = ta.rma(close, 14). Plot it with plot(wilder, color=color.blue).