The Typical Price Indicator (TPI) function measures the average of the high, low, and closing prices for the day using a simple, single-line plot. The ordinary price of this indicator gives a simplified view of the day trading prices as well as it happens with other price-adjustment functions. The traders can use the Typical Price indicator for smoothing out some of the inconstancies of the closing price. The Typical Price Indicator is comprised of information for the whole trading day and not only the result of the end of the day.
Usage Of Typical Price Indicator:
The traders can know more about the TPI by attaching it to a chart. They can find it in the STUDIES section of Zerodha Kite. This indicator also available in Kite mobile App. The default Period is 14. If you want to change the color you can also do it from the parameters. The traders can also check the attachment process of the TPI in Reliance Industries share price chart. Here, you can attach any time limit chart including daily, weekly, monthly, hourly.
Basically, every trader wants to enter and exit the market at an optimal level. The traders use various types of indicators and strategies. Traders need to find out the support-resistance levels as these indicate the trend divergence points. TPI is commonly used by traders to determine the support and resistance levels. This indicator determines the average figure of high, low and closing prices for the previous day.
In order to trade in the Stock Market, TPI is commonly used by traders in alliance with other technical indicators. This indicator is a key component of the Money Flow Index. It can be used anywhere. The closing price is utilized to determine a trend as Typical Price (TP) uses the average price for a predetermined period and acts as a filter for Moving Average Systems. As Typical Price takes into account high, low and closing price, the indicator is preferred by traders instead of other closing price indicators.
Floors traders frequently deploy this indicator in equity and futures exchanges. The indicator uses a single line plot to display the average value of Maximum, Minimum and Closing Price of a stock. Same of indicators used by traders include Median Price and Weighted Close. In order to understand the outcome of TP, it is important to calculate the TPI over varying periods. The traders can compare the current average price with the previous ones to see if the market is bullish or bearish. In this indicator, if current TP is above previous TP then it is bullish sentiment. Another way is if the previous TP outcome was greater than current TP then the trend is bearish in the market.
Specifications of Typical Price Indicator :
The traders can use the TPI as the five-point system effectively. The differentiation of typical price from support and resistance is important. The other support and resistance levels calculation of TPI is of less importance and acts as secondary indicators of price movements. Traders must remind that Typical Price is same as a short-term price predictor. This indicator cannot be used in the long run for determining price movements. It determines the market trend effectively. Another way, if the TPI is depicting an upward movement, then the market would be bullish. Also, if the TPI is illustrating a downward trend, then the market would be bearish.
Typical Price indicator is used by traders to fulfill two major roles likes determining price movements and calculating an accurate time to enter and exit the market optimally. Enter and exit can be done by placing the limit or stop orders of this indicator. Mainly, this type of indicator can only be used effectively if a technical indicator is used at the same time like MACD or a Candlestick Chart Patterns.
How Typical Price indicator works :
- The TPI gives a simple and single-line plot of the day’s average price. Some of the traders use the TPI rather than the closing price when creating moving-average penetration systems.
- The TPI is a building block of the Money Flow Index (MFI).
Calculation Of Typical Price Indicator:
The calculation of TPI is very easy and simple. This indicator uses three figures i.e. High Price, Low Price, and Closing Price. All of these High Price, Low Price, and Closing Price are added up and the outcome is divided by 3.
Formula of Typical Price = ( High Price + Low Price + Close Price ) / 3 or popularly known as HLC/3. This is also same as the formula of the pivot point for any stock or index.
Advantages of Typical Price Indicator:
- TPI can be used by any kind of trader likes Day Trader can determine TP of each day. In the same way, Swing Trader can use TPI to determine price movements of each week.
- Until and unless a price breakout occurs the price trends are invariably following TPI. This indicator can indicate New Top or Bottom in the market as well.
- One of the famous system Five Point system calculates Typical Price, it greatly helps in determining the optimal time to enter a market or exit it.
Disadvantages of Typical Price Indicator:
- TPI is an incomplete indicator. This requires the help of another technical indicator like MACD or Moving Average to determine future price trends.
- This indicator doesn’t work well while signaling entry points. Traders are following Typical Price indicator as it can reflect exit points only.