The Median Price indicator gives traders the mid-point of a specific trading range
by averaging the high and low values of the analyzed interval. This indicator is
placed on the chart itself (along with the price) and can be used to help validate
signals that are generated by other indicators. One of the most common practices
is to plot this indicator in combination with an exponential moving average (for
example, a 21 period EMA).
More broadly, the indicator allows traders to view the current price of an asset
in relation to its historical averages and this can prove to be highly valuable
when implementing short term strategies that require decisions to be made without
much delay. For this reason, many traders implementing scalping strategies will
have some version of this indicator on their charts before entering into positions.
The main benefit of using the Median Price value is that it enables traders to look
at price activity in a more objective way, without being forced to make complex
calculations. The Median Price indicator can help smooth out the price activity
so that trends can be more easily identified, which can be extremely useful depending
on which type of chart that is being used. Candlestick charts often place the focus
on the open and close of the daily price movements in an asset but using the Median
Price, traders can have a more clear understanding of the various movements seen
throughout the entire trading interval.
Sometimes this indicator is referenced by other names (for example, the Typical
Price or the Weighted Close) but all of these indicators use the same basic calculations
when tracking price activity.