The Return Abnormality Score indicator is designed to help traders identify potential reversals in price by detecting abnormal daily returns beyond a certain significance level. The indicator uses a normal cumulative distribution function to calculate the probability of the daily return and flags it when it exceeds the specified significance level.
Traders can use this indicator by monitoring the abnormality score. If the daily return is negative, the probability is multiplied by a negative number. Therefore, if the abnormality score goes above the positive threshold, it suggests that the price is oversold, while if it goes below the negative threshold, it indicates that the price is overbought. It can also be helpful for spotting bear or bull traps due to their irregular behavior.
Depending on the trader's preference, the indicator can be smoothed or unsmoothed.
This indicator should be paired with other technical analysis tools like SSL Hybrid for trend confirmation, and proper risk management strategies.