Average Price Indicator
Last updated
Last updated
The Average Price indicator calculates the average of an asset's price over a specific period.
It helps traders understand the general direction of the market by smoothing out price fluctuations. The most common form is the Typical Price, calculated as: (High + Low + Close) / 3 Sometimes, traders also use (Open + High + Low + Close) / 4 or other variations.
The indicator takes prices over a chosen period (e.g., 14 candles), applies the selected formula, and plots the average on the chart. It doesn’t react to short-term volatility, so it helps traders see the broader price movement.
If the current price is above the average price, it suggests bullish sentiment.
If the current price is below the average price, it may indicate bearish sentiment.
Crossing above or below the average line can signal possible entry or exit points.
There’s no one-size-fits-all setting — it depends on your trading style. For short-term trades, a 7–14 period is common. For longer-term trends, you might use 20–50 periods. Backtesting is recommended.
Combine it with trend indicators like Moving Averages or ADX to confirm direction.
Use it as a filter — only trade in the direction of the trend based on average price.
Look for breakouts when price deviates significantly from the average.
Example Strategy: Only go long if price is above the average and RSI is also showing bullish strength. Set stop-loss just below the average.
Using it alone for entries or exits without confirmation.
Ignoring market context — news, volatility, or support/resistance levels.
Setting the wrong time frame for your strategy (too short or too long).
The Average Price is a simple yet powerful tool. It helps you cut through noise and focus on meaningful trends. While it shouldn’t be used in isolation, it becomes highly effective when combined with volume, momentum, or pattern analysis.
