Introduction to Typical Price (TP)
Typical Price (TP) is a simple yet powerful technical indicator used in financial markets to analyze price movements. It provides traders with a smoothed average of an asset’s price over a given period, helping to identify trends, potential reversals, and areas of support and resistance. By incorporating TP into various trading strategies, traders can refine their market entries and exits, improving profitability.
Understanding Typical Price
TP gives a single value that represents the average price level of an asset during a trading session. It is commonly used in conjunction with moving averages, Bollinger Bands, and other indicators to generate trading signals.
Benefits of Trading with Typical Price
- Smoothing Effect – TP helps reduce market noise by averaging out price fluctuations.
- Identifying Trends – TP can be used with moving averages to detect uptrends and downtrends.
- Reliable Entry and Exit Points – Traders can use TP-based strategies to refine trade timing.
- Works with Multiple Indicators – TP can be used alongside volume indicators, momentum oscillators, and trend-following tools.
Typical Price Trading Strategies
1. Typical Price with Moving Averages
A common method of using TP is to apply a moving average to it. This helps smooth out price action and identify trends.
Strategy:
- Apply a Simple Moving Average (SMA) or Exponential Moving Average (EMA) to TP.
- When TP crosses above the moving average, it signals a potential buy opportunity.
- When TP crosses below the moving average, it signals a potential sell opportunity.
Example:
- Buy Signal: If TP crosses above a 20-period EMA, consider going long.
- Sell Signal: If TP crosses below a 20-period EMA, consider shorting the asset.
2. Typical Price and Bollinger Bands
Bollinger Bands consist of an upper band, a lower band, and a middle moving average. Using TP instead of the closing price can improve accuracy.
Strategy:
- Identify overbought and oversold conditions.
- When TP touches or exceeds the upper band, the asset might be overbought, signaling a sell.
- When TP touches or falls below the lower band, the asset might be oversold, signaling a buy.
Example:
- Buy Signal: If TP touches the lower Bollinger Band and starts moving up, enter a long trade.
- Sell Signal: If TP touches the upper Bollinger Band and starts moving down, enter a short trade.
3. Typical Price with RSI (Relative Strength Index)
Using TP instead of closing prices in RSI calculations can help reduce false signals.
Strategy:
- Compute the RSI using TP instead of close price.
- Look for RSI values above 70 (overbought) or below 30 (oversold) as potential trade signals.
Example:
- Buy Signal: If RSI (based on TP) drops below 30 and starts rising, go long.
- Sell Signal: If RSI (based on TP) exceeds 70 and starts falling, go short.
4. Typical Price and Volume Analysis
Volume confirms the strength of a TP-based signal.
Strategy:
- If TP is rising and volume increases, it confirms a strong uptrend.
- If TP is falling and volume increases, it confirms a strong downtrend.
- If TP moves against the trend with decreasing volume, it signals a potential reversal.
Example:
- Buy Signal: TP rises above a 50-period SMA while volume increases.
- Sell Signal: TP drops below a 50-period SMA while volume increases.
5. Typical Price with MACD (Moving Average Convergence Divergence)
Using TP in MACD calculations enhances trend-following strategies.
Strategy:
- Calculate MACD using TP instead of closing prices.
- Look for bullish (MACD crosses above the signal line) and bearish (MACD crosses below the signal line) crossovers.
Example:
- Buy Signal: MACD (using TP) crosses above the signal line.
- Sell Signal: MACD (using TP) crosses below the signal line.
6. Typical Price Pivot Points Strategy
Pivot points are key levels that help traders determine support and resistance levels.
Strategy:
- Use TP to calculate pivot points instead of the close price.
- If the TP is above the pivot point, the sentiment is bullish.
- If the TP is below the pivot point, the sentiment is bearish.
Example:
- Buy Signal: TP above the pivot point with increasing volume.
- Sell Signal: TP below the pivot point with decreasing volume.
7. Scalping with Typical Price
Scalpers can use TP with short-term indicators for quick trades.
Strategy:
- Use TP with a 5-period EMA for rapid entry/exit decisions.
- Look for TP and EMA crossovers on the 1-minute or 5-minute chart.
Example:
- Buy Signal: TP crosses above 5-EMA.
- Sell Signal: TP crosses below 5-EMA.
Conclusion
Typical Price is a versatile indicator that can be integrated into various trading strategies. Whether used with moving averages, Bollinger Bands, RSI, volume, MACD, or pivot points, TP provides valuable insights into market trends and reversals. By combining TP with other technical tools, traders can enhance their trading accuracy and maximize profits.