The calculates of Psychological Line Indicator (PLI) is the percentage of bars that close above previous candle close within the indicator calculation period. This is then plotted as an oscillator in the indicator pane. PLI works like other oscillators. Rising indicator line indicates uptrend and falling indicator line implies downtrend. The values of above 70 can be considered overbought and values of below 30 can be taken as oversold. When this indicator remains in the higher extreme levels, it means the market is trending upward with strength. A strong uptrend of this indicator usually leads to overbought market conditions and consolidation or trend reversal is imminent. The opposite situation of this indicator is happening in strong downtrends. Also, this indicator can warn about short-term price extremes.
Traders can find the Psychological Line indicator under the STUDIES section in the Zerodha Kite browser app and it is also available in the Kite mobile App. The Period is 20 and we can set the value of period high and low. You can attach this indicator on to any charts likes daily, weekly, monthly or intraday. Please check the image below to understand how we attached the Psychological Line indicator in HDFC Bank share price chart.
Psychological Line indicator can be used to generate trading signals. One of the methods is to use it to generate counter-trend trades. When the indicator reaches upper extreme levels, sell position can be opened. In this indicator, the price reversal can be confirmed by candlestick patterns, then trade can be initiated and this indicator showing overbought market conditions. When the indicator reaches the oversold levels and upward reversal candle appears then it can be opened the buy positions.
The indicator calculation period can be customized by the parameter period. To change the parameter value of this indicator, traders can change the default value of 20 while attaching the indicator on to any chart.