HMA Z-Score Probability Indicator by Erika Barker

27 sie

This indicator is a modified version of SteverSteves's original work, enhanced by Erika Barker. It visually represents asset price movements in terms of standard deviations from a Hull Moving Average (HMA), commonly known as a Z-Score.

Key Features:

Z-Score Calculation: Measures how many standard deviations the current price is from its HMA.
Hull Moving Average (HMA): This moving average provides a more responsive baseline for Z-Score calculations.
Flexible Display: Offers both area and candlestick visualization options for the Z-Score.
Probability Zones: Color-coded areas showing the statistical likelihood of prices based on their Z-Score.
Dynamic Price Level Labels: Displays actual price levels corresponding to Z-Score values.
Z-Table: An optional table showing the probability of occurrence for different Z-Score ranges.
Standard Deviation Lines: Horizontal lines at each standard deviation level for easy reference.

How It Works:
The indicator calculates the Z-Score by comparing the current price to its HMA and dividing by the standard deviation. This Z-Score is then plotted on a separate pane below the main chart.

Green areas/candles: Indicate prices above the HMA (positive Z-Score)
Red areas/candles: Indicate prices below the HMA (negative Z-Score)
Color-coded zones:

Green: Within 1 standard deviation (high probability)
Yellow: Between 1 and 2 standard deviations (medium probability)
Red: Beyond 2 standard deviations (low probability)

The HMA line (white) shows the trend of the Z-Score itself, offering insight into whether the asset is becoming more or less volatile over time.
Customization Options:

Adjust lookback periods for Z-Score and HMA calculations
Toggle between area and candlestick display
Show/hide probability fills, Z-Table, HMA line, and standard deviation bands
Customize text color and decimal rounding for price levels

Interpretation:
This indicator helps traders identify potential overbought or oversold conditions based on statistical probabilities. Extreme Z-Score values (beyond ±2 or ±3) often suggest a higher likelihood of mean reversion, while consistent Z-Scores in one direction may indicate a strong trend.
By combining the Z-Score with the HMA and probability zones, traders can gain a nuanced understanding of price movements relative to recent trends and their statistical significance.