Distance From Average
Apply To: New Pane
Chart Type: Interactive Only
Distance from Moving Average is a simple indicator that shows what percentage above or below its moving average a security is trading. Of course, chartists can easily determine whether the security is trading above or below its moving average by viewing a chart with that moving average plotted on it. However, this indicator allows chartists to more easily determine exactly how far above or below the average price is, which can give clues as to the strength or weakness of the security's move.
Indicator values can fall above or below the zero line, depending on whether the percent is above or below the moving average. Zero line crossovers correspond to price/MA crossovers, but those crossovers are relatively easy to spot on the chart itself.
The Distance from Average indicator is more often used to look for extreme values on either side of the zero line, which may indicate a coming change in the trend. A value that has risen far above the zero line may be ripe for a pullback or correction. Conversely, a value that has fallen far below the zero line may indicate a reaction rally is coming soon.
Sample Chart:
Calculation:
The formula for this indicator is quite simple:
(close - MA) / MA
The MA value is subtracted from the close in order to determine the difference between the two values, then divided by the moving average to calculate a percent. The study parameters allow you to determine the type of moving average to use in the calculation:
- Moving Average (MA)
- Exponential Moving Average (EMA)
- Smoothed Moving Average (SMA)
- Weighted Moving Average (WMA)
- High/Low Moving Average (HMA)
Note: While the default study calculates a percent, the value shown on the price scale is not formatted as a percent.
Default Parameters:
- Period: 200
- Average: MA (Moving Average)
- Distance: The study defaults to "Percentage", but you may also change the setting to "Amount" to calculate and show the dollar value (close - MA)