Category: Turning Points
Abbreviation: Valleyprob
Input parameters
Name
|
Setting
|
Default
|
High
|
High time series
|
High
|
Low
|
Low time series
|
Low
|
Close
|
Close time series
|
Close
|
Neighborhood
|
Integer >= 1
|
3
|
Window
|
Integer >= 1
|
50
|
Calculations
The Valley Probability indicator output is the probability that the Close price is at the next valley, based on the mean and standard deviation of the price percent change from peak to valley in the Window. For definition of turning point peak and turning point valley, see help topic Overview.
The probability ranges from 0 (valley is not probable) to 1 (valley is extremely probable). The valley probability only calculates if the most recent turning point in the window is peak. If it is a valley, then the valley probability is set to zero. For statistically reliable probabilities the window must be large enough compared to the neighborhood parameter. Generally, the ratio Window:Neighborhood of at least 20:1or higher is highly desirable.
This indicator can be used in a trading strategy as a Long Entry (or Short Exit) signal. Make a trading rule in the form of a relational operator A>B, where A=Valley Probability and B is a threshold, ranging from 0 to 1. Let the Trader’s optimizer find the best threshold B, the neighborhood size, and the window size that maximize your trading strategy return.
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