What is the formula for the Average Value Line indicator?

Understanding the Average Value Line Indicator

The Average Value Line (AVL) indicator is a technical analysis tool used primarily in cryptocurrency trading to identify trends and potential reversal points by smoothing price data over a specified period. Unlike more commonly known indicators such as the Simple Moving Average (SMA) or Exponential Moving Average (EMA), the AVL is less standardized and may vary in implementation depending on the platform or trader’s preference. However, its core concept revolves around calculating an average of selected price values—often a combination of open, high, low, and close prices—to generate a dynamic baseline for price movement.

One of the key features of the AVL is its ability to reduce noise in volatile crypto markets. By incorporating multiple price points into its calculation, it provides a more balanced view of market sentiment. The formula often used for the Average Value Line is based on the typical price or weighted average price, then smoothed across a user-defined number of periods. The most widely accepted base formula for the typical Average Value Line is:

AVL = (High + Low + Close) / 3

This is essentially the Typical Price, which serves as the foundation for many derived indicators. Traders then apply a moving average—usually a Simple Moving Average (SMA)—to this Typical Price over a specified number of periods (e.g., 14 periods) to create a smoothed line. Therefore, the full formula becomes:

AVL = SMA( (High + Low + Close) / 3, n )

Where:

• High = highest price during the period
• Low = lowest price during the period
• Close = closing price of the period
• n = number of periods used for the moving average

This version of the AVL is widely supported on trading platforms like TradingView and MetaTrader when custom scripts are applied.

Customization and Variations of the Formula

While the (High + Low + Close)/3 formula is standard, some traders modify the Average Value Line to include the opening price for greater sensitivity. In such cases, the formula becomes:

AVL = (Open + High + Low + Close) / 4

This version is known as the Quad-Price Average and aims to capture more comprehensive price action within a single candle or time period. When this value is then smoothed using an SMA over n periods, it becomes a refined version of the AVL.

Another variation uses volume-weighted calculations to emphasize periods with higher trading activity. The Volume-Weighted Average Value Line formula is:

AVL = SUM( ( (High + Low + Close)/3 ) × Volume, n ) / SUM(Volume, n)

This approach gives more weight to periods where significant trading volume occurred, making the indicator more responsive to strong market moves in the cryptocurrency space, where volume spikes often precede trend changes.

Traders can implement these variations using Pine Script on TradingView or through Python libraries like pandas and ta for backtesting.

Step-by-Step Calculation Example

To compute the Average Value Line manually for a 5-period SMA based on the Typical Price, follow these steps:

• Gather the High, Low, and Close prices for the last 5 candlesticks (e.g., 5 daily candles for a daily chart).
• For each candle, calculate the Typical Price:(High + Low + Close) / 3
• After computing the Typical Price for all 5 periods, sum them.
• Divide the total by 5 to get the Simple Moving Average of the Typical Price.
• The result is the current AVL value.
• Repeat this process for each new candle, dropping the oldest data point and adding the newest.

For automation, use this Pine Script code snippet in TradingView:

//@version=5indicator('Average Value Line', overlay=true)typicalPrice = (high + low + close) / 3avl = ta.sma(typicalPrice, 14)plot(avl, color=color.blue, title='AVL')

This script calculates the 14-period SMA of the Typical Price and plots it directly on the price chart, allowing traders to visualize support, resistance, and trend direction.

Using the AVL in Cryptocurrency Trading Strategies

The Average Value Line is particularly useful in trend identification and crossover strategies. When the price of a cryptocurrency like Bitcoin or Ethereum trades consistently above the AVL line, it signals a bullish trend. Conversely, sustained price action below the AVL indicates bearish momentum.

Traders often combine the AVL with a second moving average (e.g., a faster 5-period SMA) to generate crossover signals:

• A buy signal occurs when the fast SMA crosses above the AVL.
• A sell signal appears when the fast SMA crosses below the AVL.

Additionally, the AVL can act as a dynamic support/resistance level. In an uptrend, the line may serve as a pullback target, where traders watch for bounces to confirm continuation. During downtrends, the AVL may cap rallies, offering shorting opportunities.

Because cryptocurrencies exhibit high volatility, using a longer period (e.g., AVL(20) or AVL(50)) helps filter out false signals caused by sudden price spikes or whale movements.

Common Misinterpretations and Best Practices

A frequent misunderstanding is treating the AVL as a standalone predictive tool. It is a lagging indicator, meaning it reflects past price data and does not forecast future movements. Relying solely on the AVL without confirmation from volume, RSI, or MACD can lead to poor trade decisions.

Another issue arises when traders use inconsistent formulas across platforms. For example, one chart may display AVL based on (H+L+C)/3, while another uses (O+H+L+C)/4. This discrepancy can cause confusion in backtesting or live trading. Always verify the exact formula used by your charting software.

Best practices include:

• Using the AVL in conjunction with volume indicators to validate breakouts.
• Adjusting the period length based on the trading timeframe (shorter for scalping, longer for swing trading).
• Applying the AVL on higher timeframes (e.g., 4-hour or daily) to identify the primary trend before executing trades on lower timeframes.

Frequently Asked Questions

Can the Average Value Line be used on all cryptocurrency pairs?Yes, the AVL can be applied to any cryptocurrency trading pair, including BTC/USDT, ETH/BTC, or altcoin pairs. Its calculation is independent of the asset and only requires price data. However, effectiveness may vary based on liquidity and volatility. Highly volatile or low-volume altcoins may produce noisy signals.

Is the AVL the same as the Volume Profile’s Average Price?No. The Volume Profile Average Price calculates the average price weighted by volume at specific price levels over a session, often used in market profile analysis. The AVL, in contrast, is a time-based moving average of typical or quad prices and does not rely on horizontal volume distribution.

How do I add the AVL to my Binance trading chart?Binance does not have a built-in AVL indicator. To use it, connect TradingView to your Binance account. Create a Pine Script with the AVL formula, save it as a custom indicator, and apply it to any crypto chart. Alternatively, use third-party tools like 3Commas or Cryptohopper that support custom indicators.

Can I calculate the AVL using Python for backtesting?Yes. Use pandas to compute the Typical Price and ta library for the moving average. Example code:

import pandas as pdimport ta





df['typical_price'] = (df['high'] + df['low'] + df['close']) / 3df['avl'] = ta.trend.sma_indicator(df['typical_price'], window=14)

This computes a 14-period AVL and stores it in a new column for analysis.