The typical price indicator is a straightforward yet effective tool in technical analysis. It represents the average of a trading period’s High, Low, and Close prices. Instead of focusing solely on one value like the closing price, it gives a more balanced snapshot of market activity during that period.

Traders use it as a smoother way to observe price trends and potential turning points. It’s typically displayed as a single line overlay on the chart, often used as a base for further indicators or smoothing techniques like moving averages.

The formula for the typical price indicator is simple:

Typical Price = (High + Low + Close) / 3

This calculation provides a single value for each time period (e.g., daily, hourly), making it easier to analyze market behavior over time.

Interpretation

The typical price acts as a central value that reflects the general sentiment within a price bar. Unlike indicators that rely only on the closing price, this average offers a more representative view of a period’s trading range.

It helps traders filter out noise, and when combined with other indicators or moving averages, it can offer signals for entry and exit. If the current price consistently stays above the typical price, it can signal bullish momentum.

On the flip side, prices below the typical price may point to bearish sentiment. However, on its own, the typical price is more of a smoothing tool than a signal generator.

Calculation Example

Let’s say a stock has the following data for a particular day:

• High: $110
• Low: $100
• Close: $105

Typical Price = (110 + 100 + 105) / 3 = 105

So, the typical price for that day would be $105.

Step 1: Get LightningChart JS Trader

To begin, you’ll need access to LightningChart JS Trader. This library provides the tools necessary to create advanced technical indicators, including the Typical Price Indicator. Visit the LightningChart JS Trader page to download the required components and review the documentation.

Step 2: Review the Interactive Example

LightningChart JS Trader includes interactive examples that demonstrate how to create custom technical indicators. Start by reviewing the documentation, focusing on how to integrate the Typical Price Indicator into your chart setup. The interactive examples will guide you through the process of setting up the Typical Price Indicator, from importing the necessary modules to modify the chart settings.

Step 3: Code Explanation

In this step, we will break down the code that creates the chart with the Typical Price Indicator, as shown in the image, using LightningChart JS Trader. The code demonstrates how to initialize a trading chart, apply the Typical Price Indicator, and customize its appearance.

Here’s a detailed breakdown of each section:

A. Importing the Required Libraries:

• lcjsTrader: This library provides access to the LightningChart JS Trader functionalities, allowing you to create advanced financial charts.
• lcjs: The main LightningChart JS library, used for general charting functionality.
• Themes: A property within lcjs that provides access to pre-built themes. In this case, we are using the darkGold theme to style the chart.

B. Initializing the Trading Chart:

• trader(TRADER_LICENSE): Initializes the LightningChart JS Trader with the provided license key (TRADER_LICENSE). This is required to access the charting functionalities for financial data.

Note you can request a LightningChart JS Trader trial license, which is free.

• tradingChart(): This function creates a trading chart with certain options.
• loadFromStorage: false: This disables the loading of previously stored chart data from local storage, ensuring a fresh chart setup.
• colorTheme: Themes.darkGold: This applies the darkGold theme to the chart, which influences the background color, gridlines, and other visual elements.

C. Adding and Customizing the Indicator

• addTypicalPrice(): Adds Typical Price indicator, which is the average of the High, Low and Close prices for a time period. Typical Price is drawn as a single overlay line.

• tp.setLineColor('#51AEF5’): Sets the color of the indicator line to blue.

• tp.setLineWidth(2): Sets the width of the indicator line to 2 pixels.

D. Loading Data from a CSV File

• fetch(): This function retrieves a CSV file containing historical data for Alphabet Inc. (GOOGL). The CSV file includes pricing information for the company’s stock, which is plotted on the chart.
• readCsvString(): This function reads the CSV data and interprets it as pricing data for Alphabet Inc. The second argument (‘Alphabet Inc (GOOGL)’) sets the label for the chart, as seen at the top of the chart image.

E. Setting the Currency for the Chart

• setCurrency('USD'): This sets the currency of the chart to USD, ensuring that the pricing data is interpreted and displayed in US dollars.

Advantages

• Simplicity: The typical price indicator is easy to calculate and interpret, making it beginner-friendly.
• Balance: It provides a more complete view of market activity than using just the Close price.
• Smooth visual trend: Since it averages three prices, it reduces erratic price spikes and smooths the chart.
• Foundation for other tools: It can be used as a base for indicators like the Commodity Channel Index (CCI) or volume-weighted average price (VWAP).

Limitations

• Lagging nature: Like most price-based indicators, it reacts to price rather than predicts it.
• Not a standalone signal: On its own, the typical price doesn’t provide strong buy or sell signals. It needs to be combined with other tools for meaningful insight.
• Limited depth: It doesn’t incorporate volume or broader market context, which limits its power in isolation.

The typical price indicator is a simple yet powerful tool that offers a balanced view of market action by averaging the High, Low, and Close prices. While it’s not designed to act as a standalone trading signal, its real strength lies in smoothing data and enhancing the interpretation of other technical indicators.

For traders using LightningChart JS Trader, implementing and experimenting with the typical price indicator can help develop more informed strategies and gain deeper insights into market behavior.