Median Price

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Introduction

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.

Essential Assumptions

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.

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Calculation

The simple formula for the Median Price is:

(High Value + Low Value) / 2

The main purpose of the calculation is to identify the relationship between the current price values and the position of where prices are normally seen, based on historical averages.

Conclusion

In summary, the Median Price index is a technical tool that can be used to watch price activity in objective ways that are based on the historical averages of your chosen asset. Combining this tool with other indicators (such as moving averages) can help to filter-out lower probability trades and decrease the overall number of trading signals that are generated. This indicator is often used by short term traders (such as scalping) as it allows traders to get an immediate understanding of where current prices are trading in relation to the levels that are normally seen.