Signal to Noise Filter Indicator for MT4

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Signal to Noise Filter Indicator for MT4

Introduction to the Signal to Noise Filter Indicator

Most traders make irrational mistakes during choppy market conditions. Such choppy market conditions often occur when the trade signals are irrelevant compared to the volatility of the market.

The Signal to Noise Filter Indicator was developed to help traders objectively identify tight choppy markets where market noise often forms false trade signals.

What is the Signal to Noise Filter Indicator?

The Signal to Noise Filter Indicator is a volatility indicator which filters trade signals based on price movements and noise using an Average True Range (ATR).

This indicator plots two oscillating lines. One is lime and the other is silver. The lime line indicates the volatility level while the silver line represents the threshold in which we could consider price movements to be significant.

This indicator also plots a line on areas where the lime line is below the silver line to indicate areas with market noise.

Signal to Noise Filter Indicator for MT4

How the Signal to Noise Filter Indicator Works?

The Signal to Noise Filter Indicator uses an underlying Average True Range indicator applied to the Typical Price to measure volatility and price movements. It also applies a standard deviation of a Linear Weighted Moving Average (LWMA) to it. These parts of its formula and algorithm are called Viscosity and Sedimentation.

This complex formula is what the Signal to Noise Filter Indicator uses to plot the two lines which and indicate volatility.

How to use the Signal to Noise Filter Indicator for MT4

The Signal to Noise Filter Indicator has several settings options which can be used to adjust the indicator.

“Viscosity” seems to control the lime line which measures volatility.

“Sedimentation” on the other hand seems to control the silver line which acts as a threshold of volatility.

Adjusting these two variables would modify the sensitivity of the indicator.

“Threshold Level” seems to modify the standard deviation used also making the indicator more sensitive or not.

The “Lag Suppressor” option modifies the type of moving average used on the indicator which makes it more sensitive.

How the Signal to Noise Filter Indicator Works

The Signal to Noise Filter Indicator is a volatility indicator and filter. It is mainly used to help traders avoid bad trade signals due to market noise being interpreted as valid signals.

The lines that connect the lime line are signals indicating that volatility is below the threshold. This means that price action that correspond to these volatility levels should be considered as market noise and therefore should be avoided.

The standard way to use this indicator is to avoid trading on signals that develop whenever the lime line is below the silver line. This would be a good way to filter out and avoid bad trade signals.

However, it can also be viewed as pockets wherein the market has contracted. Often times, market expansion phases do follow market contraction phases. Notice this pattern on the chart below.

How to use the Signal to Noise Filter Indicator for MT4

Traders can observe for breakouts on these areas and trade as the lime line starts to break above the silver line.

Conclusion

The Signal to Noise Filter Indicator is not a technical indicator that provides trade signals. Traders should use other indicators for that. However, the information that it provides is vital as it allows traders to identify low volatility market conditions. Traders could then avoid false signals that develop during these phases or trade breakouts as volatility would start to pick up once again.

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