Bayesian Bias Oscillator

16 Apr

What is a Bayes Estimator?
Bayesian estimation, or Bayesian inference, is a statistical method for estimating unknown parameters of a probability distribution based on observed data and prior knowledge about those parameters. At first, you will need a prior probability distribution, which is a prior belief about the distribution of the parameter that you are interested in estimating. This distribution represents your initial beliefs or knowledge about the parameter value before observing any data.Second, you need a likelihood function, which represents the probability of observing the data given different values of the parameter. This function quantifies how well different parameter values explain the observed data. Then, you will need a posterior probability distribution by combining the prior distribution and the likelihood function to obtain the posterior distribution of the parameter. The posterior distribution represents the updated belief about the parameter value after observing the data.

Bayesian Bias Oscillator
This tool calculates the Bayes bias of returns, which are directional probabilities that provide insight on the "trend" of the market or the directional bias of returns. It comes with two outputs: the default one, which is the Z-Score of the Bayes Bias, and the regular raw probability, which can be switched on in the settings of the indicator.

The Z-Score output value doesn't tell you the probability, but it does tell you how much of a standard deviation the value is from the mean. It uses both probabilities, the probability of a positive return and the probability of a negative return, which is just (1 - probability of a positive return).

The probability output value shows you the raw probability of a positive return vs. the probability of a negative return. The probability is the value of each line plotted (blue is the probability of a positive return, and purple is the probability of a negative return).