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Target Probability Indicator

Probabilities and functions thereof are widely used by institutions and professional traders. Although no one can predict market movements with 100% accuracy, traders can find an edge to their trading strategy by weighing the odds that an instrument will move in a given direction by a certain amount within a degree of time.

The Target Probability Indicator uses the volatility over the last "x" bars of a currency pair and probability analysis to determine how likely price will move to the trader defined TP/SL lines (moved manually by trader) on a selected timeframe (within inputs) in a given amount of time (how many bars in the future to reach those TP/SL lines). It will also give a percentage of probability of the TP being hit before the SL.

This indicator can use two separate calculations depending on the trader's requirements. Some traders believe that markets are of a chaotic nature and current price movements occur with no influence of previous ones...everything is random. With this in mind, a trader can us a "Random Walk" approach, whereby there is a 50/50 chance of price going up or down, and it is the distance to travel based on the volatility that determines the probability outcome.

Other traders believe that markets work an a more harmonious, albeit complex manner. That trends matter and trend direction should give more weight to expected price movements. A "Weighted Trend" approach can be used by this indicator to apply more significance to the probability of price movement based on trend direction and how the previous candles are closing.

No matter what probabilities are given, it is impossible to tell which will be hit first, the TP or the SL. There could be a 65% probability that the TP will be hit, and a 27% probability that the SL will be hit, but that does not mean that the SL will not be hit prior to the TP...resulting in a loss. What it does mean is that the chances of the SL being hit are far less than the TP within a given a time. This indicator will also give the trader the likelihood of the TP being hit prior to the SL. This again is a statistical probability and can never be 100%, but it will give a good indication of your chances of success.

Input Parameters are as follows

User Inputs

  • Show Indicator On Chart – true/false (turn on/off graphical representations on chart).
  • Calculate By Random Walk – true/false (turn on/off this type of calculation...Weighted Trend option should be turned off).
  • Calculate By Weighted Trend – true/false (turn on/off this type of calculation...Random Walk option should be turned off).
  • Calculate Using Which TF – Timeframe to select in order to determine volatility and trend.
  • How Many Future Bars To Use To Reach TP/SL – Select how many bars to hit your TP/SL. Based on the TF the trader chooses. Example: on 1hr TF, select 24 future bars. The result is the probability of price hitting TP/SL lines within the next 24hrs.

Line / Label Styles

  • Lines styles and colours can be customized to your preference.
  • Label colours can be customized to your preference.
  • LabelShiftHours – A number based on hours to shift labels off the current candle. This is meant to be used if you have chart shift enabled and you would like the labels offset to the right or left of the screen. A positive number moves labels to the right, a negative number moves them to the left, 0 (zero) will display the label directly at the current candle( Time[0]).
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Version 1.2 - 2017.03.17
Version 1.2 update includes:
-Added Pips to TP/SL lines to indicate distance of lines from Bid price.
Version 1.1 - 2017.03.13
Update to version 1.1 includes:
-Added user input of period for Trend EMA (used in conjunction with PA to determine trend weight).
-TP and SL lines will no longer reset if user changes parameters.