Hodrick-Prescott Channel Indicator MT4
Platform: MT4 Type: Channel Last update: September 26, 2024The Hodrick-Prescott Channel Indicator for MT4 is a price channel based on the Hodrick-Prescott digital filter and it’s available for free download. Instead of having static support and resistance levels, it plots dynamic bands that adjust to the ongoing price action. As the result, a forex trader receives more accurate potential entry points.
Are you a fan of channel trading strategies? If so, let’s take a closer look at it and bring some practical trading examples.
Understanding the Hodrick-Prescott Channel Indicator
As you can see, it consists of two elements two bands that together create a channel called VHP and a 21-period moving average line called HP Trend. There is also a middle dashed line that separates bullish and bearish market conditions.
The Hodrick Prescott Channel is meant to catch price reversals. When it comes to understanding the HPC, it’s important to know that when the 21-HP Trend moves below the middle dashed line and the price rejects the lower channel band, it signals a bullish trend in the market. Conversely, if the price rejects the upper band when the HP Trend rises to the second half of the channel, it suggests a bearish market trend.
That forex indicator track changes in price action and automatically plot channels to identify support and resistance levels in the market. The key to using this tool effectively is to buy at support levels and sell at resistance levels, all while following the overall trend direction.
Settings
There are a few variables you can customize to fit your preferences or your trading strategy.
How To Trade With The Hodrick-Prescott Channel Indicator?
Generally speaking, the signal trigger is based on channel band rejection and then a reversal. Let’s deep dive into how to exactly use that forex indicator in a few easy steps.
Buy Signal
- 21 HP Trend dips below the channel middle line
- Price approaches lower band and rejects it
- Channel should be leaned upwards
- Open long trade when the above conditions are met
- Set stop loss a few pips below the most recent market’s low point
- First take profit it at the middle line and second take profit at the opposite band
Sell Signal
- 21 HP Trend rises above the channel middle line
- Price approaches upper band and rejects it
- Channel should be leaned downwards
- Open short trade when the above conditions are met
- Set stop loss a few pips above the most recent market’s high point
- First take profit it at the middle line and second take profit at the opposite band
Conclusion
We find the Hodrick-Prescott Channel as a solid and worthy forex indicator. It’s important to be very familiar with candlestick patterns, especially rejection and reversal patterns. It can be a good idea to add some filters for trade entry confirmation. Don’t forget that it uses a dynamic formula, thus, during high-volatility market conditions, the channel may adjust its slope significantly.
