Category: Turning Points
Abbreviation: ValleyprobB
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 current bar is at the next valley, based on the peak-to-valley bar distance mean and standard deviation 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=ValleyprobB 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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