Range Breakout Statistics [Honestcowboy]

⯁ Overview
The Range Breakout Statistics uses a very simple system to detect ranges/consolidating markets. The principle is simple, it looks for areas where the slope of a moving average is flat compared to past values. If the moving average is flat for X amount of bars that's a range and it will draw a box.


The statistics part of the script is a bit more complicated. The aim of this script is to expand analysis of trading signals in a different way than a regular backtest. It also highlights the polyline tool, one of my favorite drawing tools on the tradingview platform.

⯁ Statistics Methods
The script has 2 different modes of analyzing a trading signals strength/robustness. It will do that for 2 signals native to the script.

1. Upper breakout: first price breakout at top of box, before max bars (100 bars by default)
   
2. Lower breakout: first price breakout at bottom of box, before max bars
   

The analysis methods themselves are straightforward and it should be possible for tradingview community to expand this type of analysis to other trading signals. This script is a demo for this analysis, yet some might still find the native signals helpful in their trading, that's why the script includes alerts for the 2 native signals. I've also added a setting to disable any data gathering, which makes script run faster if you want to automate it.

For both of the analysis methods it uses the same data, just with different calculations and drawing methods. The data set is all past price action reactions to the signals saved in a matrix. Below a chart for explaining this visually.


⯁ Method 1: Averages Projection
The idea behind this is that just showing all price action that happened after signal does not give actionable insights. It's more a spaghetti jumble mess of price action lines. So instead the script averages the data out using 3 different approaches, all selectable in the settings menu.

• Geometric Average: useful as it accurately reflects compound returns over time, smoothing out the impact of large gains or losses. Accounts for volatility drift.
  
• Arithmetic Average: a standard average calculation, can be misleading in trading due to volatility drift. It is the most basic form of averaging so I included it.
  
• Median: useful as any big volatility huge moves after a signal does not really impact the mean as it's just the middle value of all values.
  

These averages are the 2 lines you will find in the middle of the projection. Having a clear difference between a lower break average and upper break average price reaction can signal significance of the trading signal instead of pure chaos.

Outside of this I also included calculations for the maximum and minimum values in the dataset. This is useful for seeing price reactions range to the signal, showing extreme losses or wins are possible. For this range I also included 2 matrices of highs and lows data. This makes it possible to draw a band between the range based on closing price and the one using high/low data.

Below is a visualisation of how the averages data is shown on chart.


⯁ Method 2: Equity Simulation
This method will feel closer to home for traders as it more closely resembles a backtest. It does not include any commissions however and also is just a visualisation of price reaction to a signal. This method will simulate what would happen if you would buy at the breakout point and hold the trade for X amount of bars. With 0 being sell at same bar close. To test robustness I've given the option to visualise Equity simulation not just for 1 simulation but a bunch of simulations.

On default settings it will draw the simulations for 0 bars holding all the way to 10 bars holding. The idea behind it is to check how stable the effect is, to have further confirmation of the significance of the signal. If price simulation line moves up on average for 0 bars all the way to 10 bars holding time that means the signal is steady.

Below is a visualisation of the Equity Simulation.


⯁ Signal filtering
For the boxes themselves where breakouts come from I've included a simple filter based on the size of the box in ATR or %. This will filter out all the boxes that are larger top to bottom than the ATR or % value you setup.


⯁ Coloring of Script
The script includes 5 color themes, each carefully created using color themes from the pantone color institute. There are no color settings or other visual settings in the script, the script themes are simple and always have colors that work well together. Equity simulation uses a gradient based on lightness to color the different lines so it's easier to differentiate them while still upper breaks having a different color than lower breaks.

This script is not created to be used in conjunction with other scripts, it will force you into a background color that matches the theme. It's purpose is a research tool for systematic trading, to analyse signals in more depth.

Metaverse color theme:



⯁ Conclusion
I hope this script will help traders get a deeper understanding of how different assets react to their assets. It should be possible to convert this script into other signals if you know how to code on the platform. It is my intention to make more publications that include this type of analysis. It is especially useful when dealing with signals that do not happen often enough, so a regular backtest is not enough to test their significance.