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Weighted alpha is a measure of stock price movements over a given period of time, typically one year. Weighted alpha assigns a higher weight to more recent fluctuations than less recent ones. Because of this difference in weighting, weighted alpha emphasizes the most recent price changes and therefore can be used to gauge short-term trends in stock price movements. Technical analysts often use weighted alpha to get a clear picture of which stocks have shown strength over the period, specifically the more recent part of the period. Using weighted alpha can help analysts to gauge the positive momentum (i.e. positive weighted alpha) or negative momentum (negative weighted alpha) of a particular stock and may signal for a buy or a sell. It should be noted that some analysts limit how much a daily price may fluctuate within the calculation for Weighted Alpha, thereby setting aside large single-day movements that may represent market overreaction.
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