Median Price
What Is the Median Price Indicator?
The median price represents the midpoint between a price bar's high and low. The Median Price indicator is a line-based graph showing a moving average of each price bar's median price.
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. It can be used to identify the trend, and raw median price data can be compared to a moving average to find crossover signals.
Calculating Median Price
The calculation of the Median Price indicator is relatively simple.
First, average the high and low of each price bar to calculate the median price. Then calculate a simple moving average of the median price data for the specified lookback period.
Interpreting Median Price
Identifying Trends
Interpreting the Median Price Indicator is pretty straightforward:
A rising line suggests an uptrend
A falling line suggests a downtrend
Changes in the line's direction can also signal a change in trend. When the median line bottoms and begins to trend upwards, this may signal the start of an uptrend; conversely, when the median line tops and turns downward, this may signal the start of a downtrend.
For volatile securities, the median price helps to smooth out the noise in the price bars. The chart below shows Sandisk (SNDK) with a median price line below the price plot. Notice that many of the price bars are very long, showing a wide trading range on those days. The smoothed median price line cuts through the noise, clearly showing an uptrend through early July, followed by a shorter downtrend into mid-August.
Median Price Crossovers
By default, the Median Price indicator produces a 14-period simple moving average of median price data, but you can also use this indicator to plot the raw median price data. Adding a separate SMA to the plot allows you to look for signals where the median price crosses above or below its moving average.
The chart below shows the Energy Select Sector SPDR Fund (XLE), with a 1-day Median Price, which is overlaid by a 50-day SMA. Configuring Median Price for a 1-day lookback period ensures that each data point is showing the raw median price value for that day.
Notice that median price crossed above and below its SMA multiple times from late April to early June, while trading was choppy. It crossed below the SMA in mid-June on a gap down and stayed below the SMA for a few weeks. In mid-July, median price crossed back above its SMA line and stayed above it for the next two months as price soared.
Price Crossovers
Since the Median Price indicator functions like a moving average, it can be tempting to overlay it on the price plot and look for price crossovers of the median price line.
Chartists should use caution when doing this. If the y-axis on the left (Median Price indicator) and the y-axis on the right (Price) do not line up vertically, any "crossovers" you see on the chart may be inaccurate. In this situation, it is necessary to manually compare the price and median price values to verify whether a crossover has actually occurred.
In the GE Aerospace (GE) chart below, it appears on the chart that price crossed over the Median Price indicator right at the beginning of the chart on April 24th, but the axes do not line up vertically. Looking at the actual values for the April 24th bar, the closing price for the bar was 284.25, and the Median Price was 299.90, still well above price. Price would not actually cross above the Median Price until May 6th, on a large gap up.
The Bottom Line
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. Plotting a 1-period Median Price indicator with its own moving average can show crossover signals based on median prices. As with most technical analysis tools, Median Price should not be used alone, but in conjunction with other complementary tools.
Charting with the Median Price Indicator
Using with StockChartsACP
This indicator can be added from the Chart Settings panel for your StockChartsACP chart. The indicator can be positioned above, below, or behind the security's price plot.
Click here for a live version of this chart.
By default, the indicator uses 14 periods for the SMA of median price. This parameter can be adjusted to meet your technical analysis needs. The example chart above uses a 1-period Median Price indicator, which shows the raw median price data. A separate 50-period SMA has been added to the Median Price indicator.
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