Typical Price (TYPPRICE)¶

The Typical Price is a price transformation that calculates a three-point average of the high, low, and close prices for each period. By giving equal weight to all three price points, it provides a more representative measure of price action than using the close alone. TYPPRICE smooths extreme price movements and is widely used as a preprocessor input for volume-weighted and momentum indicators.

Formula¶

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

This simple arithmetic mean treats each of the three price components equally: - High: The period's maximum price - Low: The period's minimum price - Close: The period's final price

Parameters¶

Parameter	Type	Required	Default	Description
`high`	Array	Yes	-	Array of high prices for each period
`low`	Array	Yes	-	Array of low prices for each period
`close`	Array	Yes	-	Array of close prices for each period

Returns¶

Returns an array of typical price values, one for each period. Each value represents the three-point average for that period.

Usage¶

require 'sqa/tai'

high =  [48.70, 48.72, 48.90, 48.87, 48.82]
low =   [47.79, 48.14, 48.39, 48.37, 48.24]
close = [48.20, 48.61, 48.75, 48.63, 48.74]

typprice = SQA::TAI.typprice(high, low, close)

puts "Current Typical Price: #{typprice.last.round(2)}"
# Output: Current Typical Price: 48.60

Interpretation¶

The Typical Price provides a more balanced view of price action than using close prices alone:

Characteristic	Interpretation
Equal weighting	Each price component (H, L, C) contributes 33.33%
Smoothing effect	Reduces impact of extreme highs or lows
Centered measure	Represents the "middle ground" of the period's action
Volume neutral	Does not incorporate volume data

Note: Array elements should be ordered from oldest to newest (chronological order)

Why Use Typical Price?¶

More Representative Than Close: While the close is important, it's just one moment in time. The typical price captures the entire range of price movement.
Reduces Noise: By averaging three prices, extreme movements in any single component are smoothed out.
Foundation for Other Indicators: Many technical indicators use typical price as their base calculation, particularly volume-weighted indicators.
Consistent Baseline: Provides a standardized price reference that works across all markets and timeframes.

Example: Comparing Price Measures¶

high =  [50.00, 51.00, 49.50, 52.00, 51.50]
low =   [48.00, 49.00, 48.50, 50.00, 49.50]
close = [49.50, 50.50, 49.00, 51.50, 50.00]

typprice = SQA::TAI.typprice(high, low, close)
medprice = SQA::TAI.medprice(high, low)
wclprice = SQA::TAI.wclprice(high, low, close)

# Compare the different price measures
puts "Period | Close | Median | Typical | Weighted"
puts "-------|-------|--------|---------|----------"
close.each_with_index do |c, i|
  puts "  #{i+1}    | #{c}  | #{medprice[i].round(2)} | #{typprice[i].round(2)}  | #{wclprice[i].round(2)}"
end

Example: Typical Price as Indicator Input¶

# Using typical price for CCI calculation (built-in)
high, low, close = load_historical_ohlc('AAPL')
cci = SQA::TAI.cci(high, low, close, period: 14)

# Manual typical price calculation for custom indicators
typprice = SQA::TAI.typprice(high, low, close)

# Calculate simple moving average of typical price
tp_sma = SQA::TAI.sma(typprice, period: 20)

puts "Typical Price SMA(20): #{tp_sma.last.round(2)}"

Example: Volume-Weighted Typical Price¶

high, low, close, volume = load_ohlcv_data('SPY')

typprice = SQA::TAI.typprice(high, low, close)

# Calculate volume-weighted typical price (VWTP)
vwtp_sum = 0.0
volume_sum = 0.0

typprice.last(20).each_with_index do |tp, i|
  vwtp_sum += tp * volume[-(20-i)]
  volume_sum += volume[-(20-i)]
end

vwtp = vwtp_sum / volume_sum
puts "20-period Volume-Weighted Typical Price: #{vwtp.round(2)}"

Example: Pivot Points Using Typical Price¶

# Daily pivot point calculations using previous day's data
prev_high = 152.50
prev_low = 150.25
prev_close = 151.75

# Calculate typical price (pivot point)
pivot = (prev_high + prev_low + prev_close) / 3
puts "Pivot Point: #{pivot.round(2)}"

# Support and resistance levels
r1 = (2 * pivot) - prev_low
s1 = (2 * pivot) - prev_high
r2 = pivot + (prev_high - prev_low)
s2 = pivot - (prev_high - prev_low)

puts <<~LEVELS
  Support/Resistance Levels:
  R2: #{r2.round(2)}
  R1: #{r1.round(2)}
  PP: #{pivot.round(2)}
  S1: #{s1.round(2)}
  S2: #{s2.round(2)}
LEVELS

Common Use Cases¶

1. Money Flow Index (MFI)¶

MFI uses typical price to calculate raw money flow:

high, low, close, volume = load_ohlcv_data('MSFT')
mfi = SQA::TAI.mfi(high, low, close, volume, period: 14)

2. Commodity Channel Index (CCI)¶

CCI measures deviation from the mean typical price:

high, low, close = load_historical_ohlc('GLD')
cci = SQA::TAI.cci(high, low, close, period: 20)

3. Custom Volume Analysis¶

Typical price provides a fair value for volume-weighted calculations:

typprice = SQA::TAI.typprice(high, low, close)
money_flow = typprice.zip(volume).map { |tp, vol| tp * vol }

4. Intraday Pivot Points¶

Day traders use typical price for support/resistance levels:

# Previous day's typical price becomes today's pivot
yesterday_tp = SQA::TAI.typprice([prev_high], [prev_low], [prev_close]).first

Comparison with Other Price Transforms¶

Transform	Formula	Weights	Use Case
TYPPRICE	(H+L+C)/3	Equal	Balanced representation, volume indicators
MEDPRICE	(H+L)/2	H=50%, L=50%	Simple midpoint, excludes close
WCLPRICE	(H+L+2C)/4	H=25%, L=25%, C=50%	Emphasizes closing price
AVGPRICE	(O+H+L+C)/4	Equal	Includes opening price

When to Use TYPPRICE vs Alternatives:

Use TYPPRICE when you want equal weighting of high, low, and close
Use MEDPRICE when you want a simple range midpoint without close bias
Use WCLPRICE when you believe close is more significant than high/low
Use AVGPRICE when you want to include the opening price

Trading Considerations¶

Advantages¶

Mathematically simple and fast to calculate
Provides balanced view of price action
Standard input for many popular indicators
Works well across all timeframes and markets
Reduces impact of outlier prices

Limitations¶

Ignores opening price
Does not account for volume
Equal weighting may not reflect market reality
Close price often considered most important
Cannot capture intraday patterns

Best Practices¶

Use as input to volume-weighted indicators
Apply to pivot point calculations
Smooth with moving averages for trend analysis
Compare with other price transforms for divergences
Consider timeframe - works well on all periods

Price Transforms¶

AVGPRICE - Average Price (includes open)
MEDPRICE - Median Price (excludes close)
WCLPRICE - Weighted Close Price (emphasizes close)

Indicators Using TYPPRICE¶

CCI - Commodity Channel Index
MFI - Money Flow Index
Various pivot point systems
Volume-weighted indicators