Financial Conditions Indicator

21 ore fa

The Financial Conditions Indicator is a custom-built TradingView Pine Script that measures the relative tightness or looseness of financial conditions in the economy. The indicator provides users with actionable insights to assess overall market liquidity and risk conditions by combining four major economic components into a single Composite Z-Score.

How It Works

Credit Spreads:
ICE BofA High Yield Option-Adjusted Spread (BAMLH0A0HYM2).
ICE BofA Corporate Index Option-Adjusted Spread (BAMLC0A0CM).
Volatility Indices:
S&P 500 Implied Volatility Index (CBOE:VIX).
U.S. Treasury Bond Volatility Index (TVC:MOVE).

Z-Score Normalization:

The raw data for each component is normalized into Z-Scores by calculating the deviation of current values from their 50-period Simple Moving Average (SMA), divided by their Standard Deviation (StDev). This process standardizes all four components into a comparable scale.
Formula:


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Z-Score = (Current Value - SMA(50)) / StDev(50)
Composite Z-Score:

The indicator computes the average of all four Z-Scores to create the Composite Z-Score. This single metric provides a broad snapshot of financial conditions.
Trend Filter:

A background color highlights periods of relative tightness or looseness:
Red (Z-Score > 0): Financial conditions are tight, indicating increased stress or risk-off behavior.

Green (Z-Score < 0): Financial conditions are loose, suggesting favorable liquidity and risk-on sentiment.
Visualization:

The Composite Z-Score is plotted as a blue line on the chart.

A neutral gray line at 0 serves as a benchmark to distinguish between tight and loose conditions.

Why It Matters
The Financial Conditions Indicator is a powerful tool for identifying macroeconomic conditions that influence risk assets such as equities, bonds, and Bitcoin. Periods of loose conditions (green) are generally favorable for asset price increases, while tight conditions (red) often precede pullbacks or heightened volatility.

This indicator enables traders and investors to:

Track the evolution of market liquidity.
Anticipate shifts in risk sentiment.
Align trading strategies with prevailing financial conditions.

Key Features:

Equal-weighted Composite Z-Score: Balances four critical market metrics.
Dynamic Trend Highlighting: Clear visual cues (green/red) for liquidity conditions.
Real-Time Monitoring: Provides actionable insights into the current state of financial markets.

3 ore fa

Note di rilascio

The Financial Conditions Composite Z-Score is a powerful tool designed to evaluate the relative tightness or looseness of financial conditions in the market. This indicator combines the z-scores of four key components—VIX (equity market volatility), MOVE (bond market volatility), ICE BofA High Yield Option-Adjusted Spread (BAMLH0A0HYM2), and ICE BofA Corporate Index Option-Adjusted Spread (BAMLC0A0CM)—to create an equal-weighted composite score.

How It Works:

Each component is normalized into a z-score over a user-defined lookback period (default: 80 days).

The composite z-score is the average of the four individual z-scores, providing a unified metric to evaluate overall financial conditions.

A positive composite z-score indicates tight financial conditions, while a negative z-score reflects loose conditions.

Visual enhancements include color-coded backgrounds:

Red when conditions are tight (z-score > 0).
Green when conditions are loose (z-score < 0).
Key Features:

Composite Z-Score: Summarizes financial conditions across credit spreads and volatility metrics.

Individual Z-Scores: Displays the z-scores of each component for deeper analysis.

Background Overlay: Aids in quickly identifying market phases (tight vs. loose conditions).

Customizable Lookback: Users can adjust the lookback period for z-score calculations.

This indicator is ideal for tracking market liquidity, risk appetite, and potential shifts in macroeconomic conditions. Traders and analysts can use it to gain insights into broader financial trends and inform strategic decisions for both risk and opportunity management.

3 ore fa

Note di rilascio

The Financial Conditions Composite Z-Score is a powerful tool designed to evaluate the relative tightness or looseness of financial conditions in the market. This indicator combines the z-scores of four key components—VIX (equity market volatility), MOVE (bond market volatility), ICE BofA High Yield Option-Adjusted Spread (BAMLH0A0HYM2), and ICE BofA Corporate Index Option-Adjusted Spread (BAMLC0A0CM)—to create an equal-weighted composite score.

How It Works:

Each component is normalized into a z-score over a user-defined lookback period (default: 80 days).

The composite z-score is the average of the four individual z-scores, providing a unified metric to evaluate overall financial conditions.

A positive composite z-score indicates tight financial conditions, while a negative z-score reflects loose conditions.

Visual enhancements include color-coded backgrounds:

Red when conditions are tight (z-score > 0).
Green when conditions are loose (z-score < 0).
Key Features:

Composite Z-Score: Summarizes financial conditions across credit spreads and volatility metrics.

Individual Z-Scores: Displays the z-scores of each component for deeper analysis.

Background Overlay: Aids in quickly identifying market phases (tight vs. loose conditions).

Customizable Lookback: Users can adjust the lookback period for z-score calculations.

This indicator is ideal for tracking market liquidity, risk appetite, and potential shifts in macroeconomic conditions. Traders and analysts can use it to gain insights into broader financial trends and inform strategic decisions for both risk and opportunity management.

3 ore fa

Note di rilascio

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