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Re: Forecasting indicators for MT4

Banzai, Thu Jan 15, 2026 5:58 am

Hidden Markov Model (HMM) trading strategy

It’s far more powerful than most retail traders realize.

A Hidden Markov Model (HMM) trading strategy
is a way to let the market tell you what regime it is in
instead of you guessing with indicators.

It answers one core question:
“Is the market trending, ranging, or transitioning right now?”

and it updates that belief every candle using probability.
1️⃣ What an HMM actually is (in trading terms)

An HMM assumes:

You can’t see the true market state
…but you can see price, volume, volatility, momentum.

Each candle produces observations:
  • Return
  • Volatility
  • Range
  • Momentum
  • Volume
The model updates:
“Given what I just saw, what is the probability we are in each state?”

That’s why it is called Hidden Markov.
2️⃣ Why HMM beats indicator stacking
Indicators are all:
  • Looking at different things
  • On different time horizons
  • Without knowing the market regime
HMM solves that.

Instead of:
“RSI is oversold, MACD crossed, Stoch crossed, Fib is hit”

You get:
“We are in a 78% probability trending-down regime”

So:
  • In trend → you only use pullbacks
  • In range → you only fade extremes
  • In chaos → you do nothing
Indicators become servants, not decision makers.
3️⃣ How HMM works in a trading system

A real HMM strategy has 3 layers:

Layer 1 — Regime detection (HMM)
Every candle:

Code: Select all

P(Trend Up)
P(Trend Down)
P(Range)
P(High Vol)
Layer2.png
Layer 3 — Your indicators
Now your RSI, Stoch, MACD are only used inside the correct regime.

Example:
  • If HMM says trend down
  • Stoch overbought → sell
  • MACD pullback → sell
If HMM says range
  • Stoch extremes → fade
This removes 70% of bad trades instantly.
You can change the blue line to light gray line.
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