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Roger Medcalf 2005 - 2013 ... You may not reprint text or images without permission



Introducing the Precision Probability Index PPI 


Signal, Indicator and user function for MultiCharts 32 and 64 bit


Computing the exact probability of one data set being higher than another data set any number of days or bars into the future with 100% Mathematical accuracy


Please note, video does not have sound



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Roger Medcalf 2005 - 2014 ... You may not reprint text or images without permission



Precision Probability Index PPI  showing signal "above below"

(Crossing above or below 50% line gives early warning of changing conditions)


With Precision Probability Index the chances of your trade being good or bad are accurately displayed in one simple output number.


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Interpretation of above example.

This is computing the probability of a 4 period weighted average being above a 35 period average 1 bar into the future with exaggeration set to x 2. If a 4 period average is above a 35 period average its considered to be in an uptrend with a long position usually being the best option.

Instead of guessing, now you will know exactly.

This is true, you have my word on it. The formula uses the probability density function which is used to compute option prices. Instead of using the current price and the "strike" price used in option terminology I have used three dynamics sets instead of a two. Volatility being one of these, affects the probable future outcome, as when volatility is high the odds of a price moving a large amount is increased which obviously results in a much closer to 50-50 probability outcome. Conversely if the short period average is way above the long period average accompanied by low volatility then we have a much higher probability of that condition staying the same which gives a 80-20 type situation.


Precision Probability Index has huge flexibility for creating many different trading strategies


Comes with a signal and sample code showing how the user function is called to create bespoke signals


There are two different types of signals provided with this product.

  • Long entry if PPI is greater than the probability you specify EG Buys if probability is greater than 51% sells short if up probability less than 49% ( user adjustable )

  • Open signal code below with a bespoke strategy that you can modify. Adjustable smoothing is provided and is very useful for this.


Description   : This is a SAMPLE SIGNAL which generates Trades from the

Precision Probability Index Indicator.


This sample code will work better on daily charts as the volatility

read by the functions will be high enough to generate trades. If you used on intra day data the values of PPI smooth1 will need to be reduced.


Long entry Smoothed PPI has risen compared to 1 bar ago and its value

is less than 45 and close > exponential moving average.

Short entry Smoothed PPI has fallen compared to 1 bar ago and its value

is more than 55 and low is equal to lowest low for 20 bars.


Long exit

3 bars since entry and highest high for 30 bars

Short exit

3 bars since entry and lowest low for 20 bars


IMPORTANT. Exaggeration is set to 10 in this sample, so please be aware that 0 is "exact mathematical probability"

and 10 is exaggerated to show the flexibility of this model. Set indicator to same values to see what is happening.


Provided By   : Precision trading systems (c) Copyright 2014


For more information how to use, please view this page link


You may not distribute or sell without permission.





vars: ppi(0),smooth1(0);


ppi =ppi_2012(short_period,long_period,barsfuture,exaggeration);


smooth1= triaverage(ppi,smooth);




if smooth1 > smooth1[1]  and smooth1 < 45 and close > XAverage(c,10) then buy next bar at market;


if smooth1< smooth1[1] and smooth1 > 55 and low=lowest(low,20) then sellshort next bar at market;


{ exits trades if close is lowest price for 30 bars }


if  barssinceentry > 3 and high = highest ( high,10) then buytocover next bar at market;

if  barssinceentry > 3 and low=lowest(low,30) then sell next bar at market;



The Precision Probability Index gives you an edge

Now you can see the scale of the PPI Indicator (below the chart ) runs from 46.5% up to 52.5% giving a 5% range. This is enough to give a slight edge to a traders statistics, and all that has been done is using longer period moving averages in the calculations. 40 period and 80 period.

If a long trade was taken when the odds were at 52.5% then the trader will know with very high probability that in a year with one thousand trades he will have had 525 winning trades and 475 losing trades. If each loss was $1000 and each win was $1000 then the end result would be $525,000 minus $475,000, giving a profit of $50,000.

In reality the results would be much better as the losers would be cut early and the winners would be run until the odds changed to below 50%. Even if the average winning trade is only 20% bigger than the average losing trade then we end up with profits of ($525,000 x 1.2) - $475,000 = $155,000

Please think this over a moment and scroll down...



The Precision Probability Index is versatile and tells the 100% mathematical truth  (Exaggeration factor must be set to zero)

Now you can see the scale runs from 46.5% up to 55% giving a 8.5% range. This is enough to give a much bigger edge to a traders statistics, and this time the difference between the two prices used has been increased. The two period moving averages in the calculations are 12 period and 100 period. Simply because these have more potential to be vastly different in value, one attains a much clearer picture of the odds for making trades.


Please see if you can notice something interesting on the indicator plot above. 


Observe the price support level when PPI retraces back to 50%


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The Precision Probability Index reveals hidden patterns that you don't see any other way

Study the example below carefully. The plot is more jagged now as I have set the short period to 1 the long period is 100. You will obviously see the rise above 50% on the left of the chart, but what else do you see? Take a good look



If you are observant you may have noticed just above the white 50 line that the price is getting supported each time the probability up hits around 51%

Now you can see the hidden patterns that are created by the quiet traders. You can see they are seeking opportunities to buy when the odds are in their favour AND when the trend is still classified as being up.  This is rather uncanny to observe and makes one think that the institutions with all their quantitative analysts are using something similar to PPI to call their trade entries.


The Precision Probability Index reveals price support areas in trends

Now you can clearly see the support area at the 50% line. The example is using 12 bars into the future to calculate the values. In this type of signal the trigger is given when the probability falls (gently) to the 49-51% region then begins rising again. This is seen most clearly with 1 short period and large long periods (100 in this case)


The Precision Probability Index can also reveal price resistance areas in trends

In the above example, you can clearly see the resistance areas encountered around the 50% line. The example is using 1 bar into the future to calculate the values. In this type of signal the trigger is given when the probability rises (gently) to the 49-51% region then backs away downward again. This is seen most clearly with 1 short period and large long periods (100 in this case)

The Precision Probability Index can be used to resemble a "Market tracker" type decision maker


This example demonstrates the extreme versatility of PPI. The lengths are period 15 and 50, but the main change is the exaggeration factor input setting has been raised to 3, so therefore the indicator is no longer telling complete mathematic truth as the probabilities are exaggerated. The main turning points are easily seen as the averages converge and diverge which create instant changes in the probability rates with virtually no lag.

Note: As exaggeration factor is increased, the PPI becomes closer to a binary output. ( 100 or 0 ) This is yet another very useful feature as a trend definition indicator as shown in the chart below but with exaggeration factor elevated to 5 times.

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The Precision Probability Index can be tuned to become a DSP binary trend indicator (100 or 0)

The example above is using exaggeration factor 5 and as the exaggeration factor increases, more clear hidden patterns begin to emerge, I doubt it is possible that anybody could ever ask for a more crystal clear indication of a trend changing direction. Please remember that exaggeration factors that are not 0 do not give exact mathematical probabilities. The variation of the factor is designed to add further dimensions of the use of this product.


The Precision Probability Index becomes a Market tracker

Those of you who are old enough may remember the software platform which ran in DOS mode and was called Indexia.

People mainly bought this Indexia research package because it came with an excellent indicator called Market Tracker. This was the creation of South African technician Jeremy Duplessis who I met a few times. The indicator was a probability model with a large amount of smoothing. As Indexia is no longer available, those who miss using Market tracker could begin to feel at home with Precision Probability Index. In the example below we can see a plot which has a very strong resemblance to it.



The Precision Probability Index as a sinusoidal plot with a signal line (showing signal line cross trading signal)

The setting called signal line can be enabled by typing TRUE or FALSE into the indicator properties box. The dotted grey line is the same plot as the yellow line but has more smoothing added to it which creates a lag effect. The crossing of the PPI above the signal line can give timely warnings of a change in direction.



Precision Probability Index uses the following seven inputs for maximum user flexibility.


PPI can gives you all this versatility of usage

  • Short Period  User defined E.G a 10 period moving average

  • Long Period   User defined E.G a 40 period moving average

  • Bars future     User defined number of bars into future computed

  • Exaggeration factor  (This input allows the user to create clearer plots)

  • Short period smoothing

  • Long period smoothing

  • Signal line true or false (This is True in the above chart)



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PPI comes with TWO SIGNALS


1. Above or below

2 Crossing the signal line

 and the indicator plot

sample code for bespoke models


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                                                                                          Disclaimer please read carefully

All the indicators, functions, signals and formulas available from PrecisionTradingSystems have been selected for their high levels of efficiency as trading tools.

However this does not guarantee success when using them on all markets you choose to trade in.

Risk of losses are high with even the best systems, and a good understanding of risk control mechanics is required before using any products you have received from PrecisionTradingSystems.

You are responsible for ensuring all precautions have been taken in your trading decisions and PrecisionTradingSystems cannot be help responsible for any losses you may incur while using its products.

These products and formulas are designed for Traders who have several years experience of trading, if you do not consider yourself in this category then please invest some time to study your methods carefully before risking any money.




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