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PriceProbability

This is an easy to use signal indicator which shows and alerts probability measures for buys and sells in near future. It is based on statistical data gathered on existing history and takes into account all observed price changes versus corresponding bar intervals in the past. The statistical calculations use the same matrix as another related indicator - PointsVsBars.

Once the indicator is placed on a chart, it shows 2 labels with current estimation of signal probability and alerts when signal strength exceeds 50%.

The indicator provides 3 signals:

  1. Plain quantitative measure of buy and sell strengths (Stats line), can be used as a secondary signal, or for aggressive trading;
  2. Probability measure as a ratio of buy and sell probabilities (Probs line), can be used as a primary signal;
  3. Suggested trading target in points (TP), can be used as confirming signal - its sign should be positive for buy and negative for sell signals;

Is all signals match each other, indicators shows a price mark for entry. If the probability measure is less than 50%, the mark is placed on a level, where the probability would supposedly become 50% (an opportunity for a pending order). If the measure is over 50%, the mark is placed at open price of 0-th bar.

Depending from signal direction and strength, the color of labels can change: blue (buy), red (sell), pale blue (may be buy), pale red (may be sell), gray (no signal).

It's important to note, that all measures are nondeterministic. Even if a measure counts for almost 100%, this does not guarantee that corresponding price movement does actually occur in near future. Due to the nature of probability, every single signal may behave differently, but overall they conform to general rules. So, in a long perspective the statistical approach yields more wins than losses.

Parameters:

  • HistoryDepth - number of bars to use for statistic calculations; by default - 5000; the larger - the better; please, make sure that there are no holes in history for the specified number of bars; minimum value is 1000;
  • ForecastDepth - number of bars to use for probability calculation; bar intervals up to ForecastDepth are taken into account; by default - 100; history should contain HistoryDepth plus ForecastDepth bars; NB: only ~1000 bars of history are available in tester at starting point;
  • Corner - corner of window where to place indicator's labels; by default - 3 (lower right); other values: 0 - upper left, 1 - upper right, 2 - lower left;
  • Mode - mode of calculations; allowed values: 0 and 1; by default - 0;

Indicator can operate in 2 modes, any one selected by Mode parameter. The mode 0 is a default one calculating probabilities in a fairly straight-forward manner: any price change on last ForecastDepth bars is taken into account either for buy or sell hypothesis depending from its sign. The mode 1 is a tricky mode - it handles 2 hypotheses for buy and sell conditions separately, that is only positive changes are taken for buy and only negative for sell. The mode 0 is better suited for medium- and long-term trading, including trends. The mode 1 is better suited for short-term trading on local price oscillations, without a long-lasting trend conditions.

Indicator is calculated on every new bar, it does not process ticks.

Recommended timeframes: M15 - H1.

Andrey Borodin
1077
2015.11.30 17:24 
 

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Version 1.3 - 2014.08.20
Fixed some errors in calculations, which may lead to inadequate values on symbols with high historical volatility.
Version 1.2 - 2014.06.16
New parameter Overflow added for choosing a method of processing spikes (exceeding array range); default value - false - is recommended, as it demonstrates better results on tests. Warning: previous versions worked in mode Overflow=true, so you may keep using if it suits better your needs.
Version 1.1 - 2014.06.13
Statistical arrays are now allocated dynamically for symbols that may have a price range of tens of thousands points (5-digit symbols), such as XAUUSD. In the version 1.0 such symbols were processed approximately. The majority of Forex symbols should not be affected. New parameter Alerts has been added for disabling alerts.