# Signal Direction Probability Indicator For MT4

The Signal Direction Probability Indicator For MT4 is a unique technical tool that attempts to provide traders with not just a directional bias, but also potential buy-sell zones. The indicator is based on the underlying principle that once a market trend is in force, it tends to continue until proven otherwise.

## FREE Signal Direction Probability Indicator

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## How to Interpret Signal Direction Probability Indicator For MT4

The Signal Direction Probability Indicator For MT4 tries to incorporate elements of a momentum oscillator as well as a trend-following indicator so that traders instead of following both, can initiate trades by simply glancing through one single indicator.  The Signal Direction Probability first calculates the percentage change in closing prices for the time frame under consideration, and then plots the percent change signal (black line) in the indicator pane. The final step involves computing the correlation between the percent change and price signal direction, whose readings are depicted by a red line.

In theory, whenever there is a high degree of correlation (greater than 0.7) between percent change and price signal, prices are likely to continue in the direction in which they were moving. For example, if an underlying asset’s prices are trending higher and correlation between price percent change and price signal is high, then prices should continue to move in the same direction. This constitutes a buy signal. Contrarily, a sell signal gets generated if prices are trending lower and correlation between the percent change and the price signal is relatively high.

## Trading System Using Signal Direction Probability Indicator For MT4

Underlying Asset: Any major currency pair

Chart Type: Candlestick

Time Frame: 1 Hour, 5 minute

Indicators:

1.       14-period Signal Direction Probability Indicator For MT4 on the 1 hour chart.

2.       3-period Simple Moving Average (SMA) and 5 Simple Moving Average (SMA) on the 5 minute chart

Long Entry Rules

1.       We first open the 1 hour chart window and zero in on currency pairs whose 20 SMA is above the 50 SMA. This signifies that the short term trend is up.

2.       We next wait for the Signal Direction Probability correlation to reach a value greater than 0.7.

3.       High correlation values indicate that the short term trend is likely to remain intact.

4.       We next switch to the 5 minute time frame, and wait for the 3 SMA to cut the 5 SMA from below. Both the averages should be rising.

5.       The precise entry point is signalled by a convincing close above the last major swing high on the 5 minute chart.

Stop Loss and Price Target

An initial protective stop loss is placed just below the low of the prior 5 candle bars. The trade is allowed to run until the 3 SMA changes direction and drops below the 5 SMA.

Short Entry Rules

1.       We open the 1 hour chart and select currency pairs whose 20 SMA is trading below the 50 SMA. This signals that the short term trend is down.

2.       We then wait for the correlation on the Signal Direction Probability Indicator For MT4 to reach a value greater than 0.7.

3.       High correlation values signify that the short term down trend will potentially continue.

4.       We next shift to the 5 minute window, and wait for the 3 SMA to cut the 5 SMA from above. Both the averages should be declining.

5.       The exact short entry point is pinpointed by a convincing close below the last major swing low on the 5 minute chart.

Stop Loss and Price Target

An initial protective stop loss is placed just above the high of the previous 5 bars. The short trade is allowed to run until the 3 SMA crosses back above the 5 SMA.

## Final Thoughts

After thoroughly analyzing the Signal Direction Probability Indicator For MT4 over diverse assets and time frames, it has become evident that the indicator is ideal for shorter time frames of 4 hours and below. Any higher trading horizon, and the Signal Direction Probability Indicator For MT4 seems to significantly lose its edge.