Raw VS Percentage Volatility Format

24 нояб.

A Quantitative Comparison of "Buying & Selling Pressure" and "Average Bullish & Bearish Percentage Change"

In market analysis, the choice of averaging method can profoundly influence the insights derived. The "Buying & Selling Pressure [Candle Metrics]" and "Average Bullish & Bearish Percentage Change" indicators demonstrate the unique strengths of fixed-period and candle-count-based averaging approaches.

Key Differences Between Fixed-Period and Candle-Count Averaging

1. Fixed-Period Averaging in BSP:
   ➡︎ In "Buying & Selling Pressure", candle metrics are averaged over a defined period (e.g., 14 bars).
   ➡︎ This provides rapid insights into market sentiment changes, making it ideal for tracking incentive shifts and volatility in real time.
   ➡︎ However, because this method includes all candles in the averaging window, it may reflect short-term fluctuations, offering less stability compared to candle-count-based methods.
   
   
2. Candle-Count Averaging in ABBPC:
   ➡︎ "Average Bullish & Bearish Percentage Change"uses a predefined count of bullish or bearish candles for averaging percentage changes.
   ➡︎ This produces stable and reliable values, which are less sensitive to noise and better suited for risk and reward assessment.
   ➡︎ The focus on specific candle states ensures that only relevant market behaviors contribute to the averages.
   

Using Percentage Change for Risk Definition
One of the greatest strengths of the "Average Bullish & Bearish Percentage Change" indicator is its ability to assist in risk and reward calculations with much more market related figures instead of raw values of volatility:

• Defining Risk
  The average percentage change of bearish candles can serve as a dynamic stop-loss level.
  For example, if the average bearish percentage change over the last 10 candles is 2%, a trader can set a stop-loss at 2% below their entry to account for typical market behavior.
  
• Quantifying Reward:
  The average bullish percentage change helps identify realistic profit targets.
  If the average bullish percentage change over the last 10 candles is 3%, a trader can set a target at 3% above their entry to maintain a favorable risk-to-reward ratio.
  
• Dynamic Adjustments:
  As the market evolves, these average percentage changes update, allowing traders to adjust their risk and reward levels in real time for better precision.
  

Quantitative Advantages of Percentage Change Averaging

• Normalization Across Price Levels:
  Percentage changes enable consistent comparison across assets with vastly different price ranges.
  
• Enhanced Stability for Risk Assessment:
  Candle-count averaging smooths out noise, offering a reliable basis for setting risk parameters like stop-losses and profit targets.
  
• Improved Predictability:
  By isolating specific candle behaviors, percentage-based metrics provide clearer signals for trend-following or mean-reversion strategies.
  

Advantages of BSP’s Fixed-Period Averaging
Despite being less stable, "Buying & Selling Pressure [Candle Metrics]" excels in areas requiring speed and adaptability:

• Fast Incentive Tracking:
  Period-based averaging adapts quickly to changing market conditions, providing timely insights into shifts in buying or selling pressure.
  
• Broad Volatility Capture:
  BSP includes all candles in the defined period, capturing overall market dynamics, including sudden spikes or reversals.
  
• Real-Time Decision Making:
  Its responsiveness makes it highly suitable for momentum or breakout trading strategies.
  

Bottomline:
Use "Average Bullish & Bearish Percentage Change" for stable, consistent data ideal for risk assessment, particularly when defining dynamic stop-loss levels or profit targets based on average percentage changes.
Use "Buying & Selling Pressure [Candle Metrics]" for its speed and adaptability in tracking real-time shifts in market incentives and capturing volatility.