Technical Analysis, Studies, Indicators:
Typical Price (TP)
Description
The Typical Price is average price of a tradable security over the specified period of time.
Technical Analysis, Signals and Trading Systems
In technical analysis Typical Price is usually used as a substitute to price. Most of the technical indicator are based on the closing price. However, as an example, when you analyze daily charts where 1 bar = 1 day and let's say a stock's closing price for this day is $10 it does not mean that this stock has been traded the entire trading session at $10. This stocks was traded in the range between High and Low prices. Where High price is the highest traded price within specified period (in our case within a day), and Low price is the lowest traded price within the same specified period (in our case within a day). Therefore some technical analysts may prefer using the Typical Price, you may also call it as and average price, instead of closing price in calculation of various technical indicators and building various trading systems by considering Typical Price as more correct representation of trading price when compared to Closing price.
Typical Price sometimes called as Pivot Point as it is used as the main Pivot Point from which Pivot Support and resistance levels are calculated. Commodity Chanel Index (CCI) could be another example of using Typical Price - it is based on the deviation of Typical Price form SMA applied to it. Money Flow Index developed by Mr. Chaikin is another popular technical indicator which uses Typical Price instead of Closing price - here Typical price is used to evaluate weight money flow. Volume Weighted Average Price (VWAP) uses typical to weight trading volume also.
Chart 1: QQQ stock chart - candlesticks and Typical Price.
Formula and Calculations
Typical Price is calculated as average of the high, low and closing prices over the specified period (bar):
Typical Price = (High + Low + Close) / 3
By V. K. for MarketVolume.com
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