What is the formula for the Average Value Line indicator?

The Average Value Line (AVL) smooths high, low, and close prices using a moving average to filter noise and highlight trends in cryptocurrency trading.

Aug 01, 2025 at 01:00 am

Understanding the Average Value Line Indicator

The Average Value Line (AVL) indicator is a technical analysis tool used in cryptocurrency trading to identify trends and potential reversal points by smoothing price data. Unlike traditional moving averages that rely solely on closing prices, the AVL incorporates multiple price points—such as high, low, and close—to generate a more balanced representation of market sentiment. The core idea behind the AVL is to reduce noise and provide traders with a clearer view of the underlying trend. The formula for the Average Value Line is derived from a modified average of key price levels over a defined period.

The general formula for the Average Value Line is:

AVL = (High + Low + Close) / 3

This calculation produces what is often referred to as the Typical Price for a given period. However, in the context of the Average Value Line indicator, this value is usually smoothed over multiple periods using a moving average technique. Therefore, the complete formula becomes:

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

Where:

• SMA stands for Simple Moving Average
• n is the number of periods (commonly 14 or 20)
• High, Low, and Close are the respective price values for each candlestick

This formula ensures that the indicator reflects a more comprehensive view of price action than closing price alone.

Components of the Formula Explained

Each component in the AVL formula plays a specific role:

• High: Represents the highest price reached during the period. It indicates bullish momentum and potential resistance levels.
• Low: Reflects the lowest price traded. It signals bearish pressure and possible support zones.
• Close: The final price at the end of the candle, considered one of the most important data points in technical analysis.

By combining these three values and dividing by three, the formula computes the Typical Price, which serves as the foundation for the AVL. The subsequent application of a Simple Moving Average over 'n' periods smooths out short-term volatility, making it easier to interpret long-term trends. For example, if using a 14-period SMA, the indicator will display the average of the last 14 Typical Prices.

How to Calculate the AVL Step-by-Step

To manually compute the Average Value Line on a cryptocurrency chart, follow these steps:

• Gather the High, Low, and Close prices for each candlestick over the desired number of periods (e.g., 14 candles on a 1-hour chart).
• Calculate the Typical Price for each candle using the formula: (High + Low + Close) / 3.
• Sum the Typical Prices for the selected number of periods (e.g., 14 values).
• Divide the total sum by the number of periods to get the Simple Moving Average of the Typical Price.
• Plot the resulting value on the chart as the AVL for that period.
• Repeat the process for each new candle, dropping the oldest value and including the newest to maintain a rolling average.

This method ensures the AVL remains dynamic and responsive to new market data. Traders often apply this calculation across various timeframes, from 5-minute charts for scalping to daily charts for long-term trend analysis.

Implementing AVL in Trading Platforms

Most modern cryptocurrency trading platforms, such as TradingView, MetaTrader, or Binance's built-in charting tools, allow users to add the Average Value Line indicator directly. Here’s how to set it up on TradingView:

• Open a cryptocurrency chart (e.g., BTC/USDT).
• Click on the “Indicators” button located at the top of the chart.
• In the search bar, type “Average Value Line” or “Typical Price SMA.”
• Select the indicator from the results.
• Adjust the settings to define the length (number of periods) and price source (ensure it uses (H+L+C)/3).
• Click “Apply” to display the AVL line on the chart.

Some platforms may not have AVL as a default indicator, requiring manual scripting. In Pine Script (TradingView’s language), the code would be:

typical = (high + low + close) / 3
avl = sma(typical, 14)
plot(avl, color=color.blue, title="Average Value Line")

This script calculates the Typical Price, applies a 14-period SMA, and plots the result as a blue line.

Using AVL for Trend Confirmation and Signals

Traders use the Average Value Line to confirm trend direction and generate entry or exit signals. When the price of a cryptocurrency is consistently above the AVL, it suggests a bullish trend. Conversely, if the price trades below the AVL, the market may be bearish. Crossovers between the price and the AVL can signal potential reversals:

• A price crossing above the AVL may indicate a buying opportunity.
• A price crossing below the AVL could suggest a sell signal.

Additionally, the slope of the AVL line provides insight into momentum. An upward-sloping AVL indicates strengthening bullish sentiment, while a downward slope reflects increasing bearish control. Some traders combine the AVL with volume indicators or RSI to filter false signals and improve accuracy.

Customizing the AVL for Different Strategies

The effectiveness of the AVL can be enhanced by adjusting its parameters based on trading style:

• Short-term traders may use a smaller period (e.g., 7 or 10) for faster responsiveness.
• Long-term investors might prefer a 20 or 50-period AVL to filter out market noise.
• The type of moving average can also be changed—some traders replace SMA with EMA (Exponential Moving Average) for greater weight on recent prices.

Changing the moving average type alters the sensitivity of the AVL. An EMA-based AVL will react more quickly to price changes than an SMA-based one, which may be preferable in volatile crypto markets.

Frequently Asked Questions

Q: Is the Average Value Line the same as the Pivot Point indicator?

No. While both use (High + Low + Close)/3, Pivot Points are calculated using the previous period’s data and remain static for the current period. The AVL recalculates continuously using a moving average, making it dynamic and adaptive.

Q: Can the AVL be used on all cryptocurrency pairs?

Yes. The AVL is applicable to any crypto asset, including Bitcoin, Ethereum, and altcoins, as long as price data (High, Low, Close) is available.

Q: What is the default period setting for the AVL?

There is no universal default, but 14 periods is commonly used due to its balance between responsiveness and smoothing. Traders adjust this based on their strategy.

Q: Does the AVL work well in sideways markets?

In ranging markets, the AVL may produce frequent crossovers, leading to false signals. It performs best in trending conditions where price consistently moves above or below the line.