by Joe Ross

(Previously published in Futures Truth Magazine.)

Tomorrow’s Typical Price in a Downtrend

To compute tomorrow’s Typical Price in a downtrend, we need to find the average rate of descent.  It’s important to use four bars for this computation.

What we want to know is, on average, how much prices are moving in the direction of the downtrend.  To find out, we measure from high to low.  Here are the steps to follow:

We measure from today’s high to the previous day’s low, to see how far prices move over a two-day period.  We do this for three overlapping two-day periods.

3

We then add those measurements together and divide by three.
2.25 + 2.00 + 1.50 = 5.75 / 3 = 1.92 (rounded) on average.

Subtracting 1.92 from the last known high (61.50), we obtain 59.58 for tomorrow’s projected low.

Next we need to determine tomorrow’s projected high.

We measure the average volatility for the last three bars.  Average volatility equals the sum of the differences between high and low, divided by three.

4

We have:

61.50 – 59.25 = 2.25
62.75 – 60.00 = 2.75
63.50 – 60.75 = 2.75

The three differences are, 2.25, 2.75, and 2.75.
Summing these and dividing by 3 = 7.75 / 3 = 2.58

Adding 2.58 to the projected low, we obtain 62.16 for tomorrow’s projected high. 59.58 + 2.58 = 62.16.

The final step is to add the projected low and the projected high, then divide by two to come up with a Typical Price.  In this case, (62.16 + 59.58) / 2 = 60.87 = tomorrow’s Typical Price.

I’m sure there are many other ways to come up with typical price. It’s a matter of choice.  With today’s software in many instances being programmable by the user, we can fgure all the different ways and then make our choice.

One last thing: the formula for calculating the CCI follows, for those “do-it-yourselfers” who want to know.


Stay tuned for the follow up posts on this excellent article!

Advertisements