How to use Chobotaru Indicator
Updated
Our indicator can now be used by everyone.
There are a lot of indicators trying to predict what will be the range of the stock in the future.
Some of the indicators, that are well known, are using STD of volatility like Bolinger Bands or using an advanced simulation like Monte-Carlo, and others that are using different methods.
Our approach to this subject is different. There is an official volatility predictor called Implied Volatility. (I explained it in a different post)
This number can be seen in the options chain in your broker platform. You don’t need to trade options to use this indicator.
This indicator shows you a probability cloud, giving you the probability of the stock moving to a certain price.
This can help in several ways like determine if your target price is possible, where to put stop-loss, you can also use other technical analyses, like support and resistance to choose which area is best for your trade. The sky is the limit.
We tested it on 30(+/-10) days of small market cap and higher. In our testing, the price finished inside the range more than 80% of the time (the result are higher but I’m trying to stay conservative).
The user can choose a different option’s time period than 30 days, but the longer the period the higher the chance for a rare event that is not currently priced in.
The indicator is based on the partial differential equations from the mathematical model of options, the Black-Scholes model.
In simple words, the prices of options give you some indication of how the market [makers] thinks the stock should perform. If you take the implied volatility and insert it into the indicator, you can see the probability range, transforming this data into a visual representation.
What inputs do you need to enter?
Instrument price –
The current price of the stock or futures contract.
In this example, the close price of the SPY on March 30, 2021, is 394.73
The interest rate –
Searching in google: “U.S. Department of the treasury daily yield curve rates”, Use the 3-month value (of the day of the entry or day before).
On 03/30/2021 the 3-month value was 0.02%
Days to expire (minus trading holidays) –
At the end of 03/30/2021, I searched for the option that is the closest to 30 days on the SPY. The option that ending on April 30, has 31 days, in this period we have a holiday “Good Friday”, so I subtract the original number of days from the holiday, 31-1 = 30
Implied Volatility –
This number in your trading platform will usually be shown in a percentage, you need to enter a positive decimal number.
In this example, the implied volatility of the option was 15.2%, the input is 0.152
The date – The last thing is the date of the entry, in this case, Day – 30, Month – 3, Year – 2021.
This indicator can be used on daily bars and everything smaller than that. We recommend using it on daily bars.
Try it for yourself on your charts and share your result, if you have any questions, tell us in the comments.
There are a lot of indicators trying to predict what will be the range of the stock in the future.
Some of the indicators, that are well known, are using STD of volatility like Bolinger Bands or using an advanced simulation like Monte-Carlo, and others that are using different methods.
Our approach to this subject is different. There is an official volatility predictor called Implied Volatility. (I explained it in a different post)
This number can be seen in the options chain in your broker platform. You don’t need to trade options to use this indicator.
This indicator shows you a probability cloud, giving you the probability of the stock moving to a certain price.
This can help in several ways like determine if your target price is possible, where to put stop-loss, you can also use other technical analyses, like support and resistance to choose which area is best for your trade. The sky is the limit.
We tested it on 30(+/-10) days of small market cap and higher. In our testing, the price finished inside the range more than 80% of the time (the result are higher but I’m trying to stay conservative).
The user can choose a different option’s time period than 30 days, but the longer the period the higher the chance for a rare event that is not currently priced in.
The indicator is based on the partial differential equations from the mathematical model of options, the Black-Scholes model.
In simple words, the prices of options give you some indication of how the market [makers] thinks the stock should perform. If you take the implied volatility and insert it into the indicator, you can see the probability range, transforming this data into a visual representation.
What inputs do you need to enter?
Instrument price –
The current price of the stock or futures contract.
In this example, the close price of the SPY on March 30, 2021, is 394.73
The interest rate –
Searching in google: “U.S. Department of the treasury daily yield curve rates”, Use the 3-month value (of the day of the entry or day before).
On 03/30/2021 the 3-month value was 0.02%
Days to expire (minus trading holidays) –
At the end of 03/30/2021, I searched for the option that is the closest to 30 days on the SPY. The option that ending on April 30, has 31 days, in this period we have a holiday “Good Friday”, so I subtract the original number of days from the holiday, 31-1 = 30
Implied Volatility –
This number in your trading platform will usually be shown in a percentage, you need to enter a positive decimal number.
In this example, the implied volatility of the option was 15.2%, the input is 0.152
The date – The last thing is the date of the entry, in this case, Day – 30, Month – 3, Year – 2021.
This indicator can be used on daily bars and everything smaller than that. We recommend using it on daily bars.
Try it for yourself on your charts and share your result, if you have any questions, tell us in the comments.
Note
How it ended
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