Median Price
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The Median Price indicator is a line-based graph showing the trading range's midpoint for a given period. It's calculated by averaging the highest and lowest prices for a specific range of sessions (StockCharts’ default is 14 periods).
Consider it a moving average of median (or midpoint) prices. Because the Median Price Indicator averages median prices versus closing prices, as in the case of most moving averages, it tends to be less affected by large price fluctuations and outliers.
The calculation is relatively simple.
To derive the median price for a given period of days, say, 14 days, you would calculate the median price for each day and then calculate the average median price over the past 14-day period.
The chart below depicts Advanced Micro Devices (AMD), with the Median Price Indicator displayed in the lower panel. You can also overlay it on the price chart.
While AMD’s prices fluctuate with relative volatility, notice how the progression of its median price is smooth, illustrating a clear trend in its movement over time.
In addition to helping you identify the underlying trend of a given stock, the Median Price Indicator can also serve as a comparative filter when used with other trend indicators.
Interpreting the Median Price Indicator is pretty straightforward:
A rising line suggests an uptrend
A falling line suggests a downtrend
While the interpretation can be simple, how can you make this indicator actionable?
Comparative trend filter. You can compare the median price line with other trend indicators to confirm trend direction.
Price-to-line crossovers. When you overlay the median line on the price chart, you can use the indicator as a buy and sell signal. When price crosses above the median line, it may signal an opportunity for a buying setup; the opposite may be the case if price crosses below the median line.
Rising/falling lines. When the median line begins trending upwards, it may be a bullish sign to look for a potential buying setup; the reverse may be true when the median line begins to trend downward.
Like all technical indicators, the Median Price Indicator has its set of strengths and limitations.
Simple to Interpret. The indicator’s main advantage is its simplicity. The simple calculations and the basis of the inputs are closely associated with the actual price movements, making it relatively easy to interpret.
Filters Out Market Noise. The Median Price Indicator can provide a clearer picture of the market's underlying direction​ because the focus is on the median level of prices rather than closing prices, which are subject to volatility and large fluctuations.
Helps Identify Support and Resistance. Some traders look to certain moving averages such as the 50-day, 100-day, and 200-day simple moving average, for potential support. While the Median Price Indicator is also a moving average, but a less volatile one as it’s based on median prices, it can aid you in assessing moving averages that are usually used as possible support and resistance by delivering a secondary average or a wider range of it.
Lagging Indicator. Like all moving averages, the Median Price Indicator is a lagging indicator. This can sometimes reduce its effectiveness in fast-moving market conditions.
Misleading Signals. Despite its capacity to reduce market noise, the Median Price Indicator can still produce false or misleading signals, especially when markets are choppy.
Not As Effective in Non-Trending Markets. This indicator works best in trending conditions. When markets are range-bound or sideways, the Median Price Indicator might not provide clear signals that would be considered actionable.
Enter the ticker symbol of the chart you wish to analyze.
Under Chart Settings, select Median Price from the list of Standard Indicators.
To change the default parameter settings, select the settings icon next to the indicator and change either the number of periods, line style, opacity, colors, or choose to add an overlay to the indicator.
The Median Price Indicator effectively identifies the overall trend of a stock's price by averaging the median prices over a given period. Its ability to filter out market noise and its easy-to-interpret construction and visual format make it particularly useful. Although it has its inherent limitations, if used properly, the Median Price Indicator can be a valuable tool in helping you identify and confirm trends. It works well as a comparative trend filter alongside other trend indicators and can help confirm bullish or bearish market conditions based on the direction of the median line trends and price-to-line crossovers.
