OPEN-SOURCE SCRIPT
HMA Z-Score Probability Indicator by Erika Barker
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.
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.
Open-source script
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in publication is governed by House rules. You can favorite it to use it on a chart.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.