Expected Move Pro

Expected Move is the amount that an asset is predicted to increase or decrease from its current price, based on the current levels of volatility.



This Expected Move Pro indicator uses a maximum likelihood estimation for Asymmetric Laplace distribution parameters, and is an upgrade from the regular Expected Move indicator that uses a Normal Distribution. The use of the Asymmetric Laplace distribution ensures a probability range more accurate than the more common expected moves based on a normal distribution assumption for returns. Asymmetric Laplace distribution takes in account fatter tails and volatility clustering during low volatility. So it will be thinner in the body (eg: <70% range) and fatter in the tails (>95% range) which fits the stock return better.




When we compare the more peaked asymmetric laplace to the bell curve shaped normal distribution we can see that the asymmetric laplace fits the empirical data (blue histogram) significantly better. The fit is improved in both the body (middle peaked part) as well as in the fatter tails (more of extreme occurrences far from the center)

EXPECTED MOVE PROBABILITY:

In the expected move settings, the user can specify the range probability they wish to display. In a normal distribution a 1 standard deviation range corresponds to a range within which just under 70% of observations fall. So to specify a 70% probability range one would set 15% probability for both the upper and lower range.



For the more extreme ranges a two tail function is used so the user can only specify one probability. When 5% probability is specified the range will cover 95% and on each side of the range the probability of an occurence that extreme will be 2.5%. In the above Image we can see two tail probabilities specified at 5% and 1%, covering the 95% and 99% ranges respectively.

The indicator also allows for multi timeframe usecases. One can request a daily or perhaps even weekly expected move on an hourly chart, like we see below.



SETTINGS:

Resolution: Specify the timeframe and if you want to use the multi timeframe functionality.
Real Time: Do you wish the expected move to adjust with the current open price or do you wish it to be a forecast based on the yesterdays close. If latter, keep it OFF.
Sample Size : Lookback or the number of bars we sample in the calculation.
Optimization: Keep it on for speed purposes, only slightly higher precision will be achieved without optimization.
Probabilities: One tail - left and right, specify probability for each side of the range, two tail - single probability split in half for each side of the range
Center: Displays the central line which is the central tendency of a distribution / the median
Hide History: Hides expected moves and only the expected move for the current bar remains.
Plot Style Settings : One can adjust the line styles, box styles as well as width and transparency.