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1. Understanding of the Median Indicator
Technical analysis is one aspect of trading that cannot be overemphasized as its a very important determinant of profitability and therefore, there is the need to understand technical analysis indicators in the market.
The median indicator is a technical analysis indicator that measures volatility in the market by making use of a channel created by the computation of its ATR from a median line. It's pertinent to note that th median indicator is a trend-based indicator, this means it helps in identifying and taking trends with respect to the current trend in the market.
The median line are very synonymous to Exponential moving averages of the same length or period settings and the ATR of the median indicator is drawn above and below the median lines respectively. Another feature of the median indicator is the presence of clouds which exists as a difference between the median lines and the EMA. It depicts two major colors by default namely, green and purple which helps in showing the trend of the market and serves as signal information to aid trade entries. A buy/long signal is generated when the cloud of the median indicator turns green while a sell/short signal is generated when the cloud of the median indicator turns purple.
Parameters and calculation of the median indicator
The parameters used in the calculation of the median indicator are gotten from data points with respect to the opening price, closing price, highest and lowest point reached during a time period. The bands of the median indicator which consist of the upper and lower band plotted above and beneath the median line respectively are gotten using the Average True Range of the set period.
The calculation for the bad are given below
Upper band = Median length + (2ATR)
Lower Band = Median Length - (2ATR)
Median length in the above formula refers to the number of data points considered in the calculation of the median. This value has a default length of 3 in the trading charting software.
The ATR or Average True Range in the calculation refers to the number of length considered in the derivation of the ATR values and lastly
The ATR multiplier represents a value that is multiplied by the ATR value to decipher the values of the upper and lower bands.
median indicator settings
image gotten from trading view
In the image above, the settings of the median indicator as well as its default values are given. A trader can choose to customize the median indicator to suit his/her trading style by altering the values of the parameters given. However, it's important to note that the ATR and median length are very susceptible to little changes in value therefore its important to input a decent value to avoid getting false or oversensitive signals.
Uptrend using Median Indicator
The median indicator is a trend based indicator and thus its very effective in the identification of current trends in the market just like the moving averages. To identify an uptrend using the median indicator, certain criteria such as the color of the cloud and the position of the Median line with respect to the EMA. An uptrend is confirmed by the indicator whenever the median line is above the EMA line and the cloud shown is green.
This is illustrated in the image below
uptrend with the median indicator
image gotten from trading view
Its observed how the cloud of the indicator changed from a previous purple to green while the median line was above the EMA in this illustration confirming the change of structure to the upside/uptrend. Therefore, when this scenario persists in the market, traders are advised to, in lieu of taking positions in favor of the trend, look for long/buy positions.
Downtrend with the median indicator
The criteria for identifying a downtrend with the median indicator is largely similar to that of the uptrend displayed above with the differences being in the color of the cloud and the position of the median line with respect to the EMA.
A downtrend is confirmed with the median indicator whenever the medianline is below the EMA line and the cloud displays a purple color.
This is illustrated in the image below
downtrend with the median indicator
image gotten fromtrading view
It's observed how the cloud of the indicator changed from its initial color of green to purple while the median line of the median indicator was below the EMA. This is a confirmation of a downtrend and we observe how price continued its bearish impulse after this signal. Therefore, when this is spotted by traders in the market, its advisable to take short/sell positions with respect to the trending market.
Identifying fake signals with the median indicator
No indicator in the market would always guarantee 100% accurate signals all the time. Indicators are prone to generating false signals every now and then and it's important to watch out for these false signals whenever they occur to avoid taking losing positions.
False signals given off by the median indicator can be filtered using an oscillator in the market like the Relative Strength Index (RSI).
The Relative Strength Index (RSI) Indicator is a momentum indicator that helps to measure the volatility of price movements. It was developed by J. Welles Wilder to determine extreme situations in the market such as oversold and overbought signals.
The RSI indicator oscillates around the 0 and 100 levels. Once the indicator oscillates around the 70 region, it indicates an overbought situation which informs traders of an impending reversal to the downside, and conversely, when it enters the 30 thresholds it indicates an oversold situation which informs traders of an impending reversal to the upside.
An example of false trend filtration using the RSI and the median indicator is given below.
false signals discovered using the RSI and median indicator
image gotten from trading view
In the chart illustration above, the RSI indicator and the median indicator have been customized to chart and observation shows that the price was initially in an uptrend and approached a important resistance area which got tested the first time. Upon second retest, the green clouds of the median indicator appeared indicating a buy position but the RSI was in an overbought condition which meant that a reversal to the downside might occur soon and judging from price action and the RSI indicator, this false signal would have been filtered.
DEMO trades using the median indicator
For this task, ill be opening demo trades with respect to signals generated with the median indicator using the trading view paper trading app.
Buy trade on APE/USDT
image gotten from trading view
From the APE/USDT chart above, it was observed that price had approached an important area in the market. A support area which price had reacted to severally in the past. Upon hitting this area, we notice rejection candles in the form of wicks began to form and shortly after the median indicator began to give a green cloud and noticing the three consecutive bullish candlesticks that had formed, a buy trade was taken at this area with risk management measures.
proof of trade
image gotten from trading view
sell trade on APE/USDT
image gotten from trading view
From the COTI/USDT chart above, a state of downtrend is observed in the market with the existence of persistent lower highs and lower lows. However the market makes little corrective movements to the upside and therefore the median indicator was used to find entry on the existing trend. The purple clouds of the indicator were visible and an engulfing bearish candle was spotted in favour of the current trend, therefore a sell position was opened with risk management measures employed.
proof of trade
image gotten from trading view
CONCLUSION
The median indicator is an effective technical analysis indicator that helps in showing the trend of the market and serves as signal information to aid trade entries.
The crypto professor has done an excellent job of putting forward the concept of support and resistance trading as well as strategies to use to profit from this form of trading in a simple way. Thanks to the steemit team for the crypto academy, It's done far much in helping me tackle the markets one indicator/strategy at a time.