IU VaR (Value at Risk) Historical Method

12월 7일

This Pine Script indicator calculates the **Value at Risk (VaR)** using the **Historical Method** to help traders understand potential losses during a given period( Chart Timeframe) with a specific level of confidence.

What is Value at Risk (VaR) ?
Value at Risk (VaR) is a measure used in finance to estimate the potential loss in value of an asset, portfolio, or investment over a specific time period, given normal market conditions, and at a certain confidence level.

Example:
Suppose you invest ₹1,00,000 in stocks. A VaR of 5% at a 95% confidence level means:
- There is a **95% chance** that you won’t lose more than **₹5,000** in a day.
- Conversely, there is a **5% chance** that your loss could exceed ₹5,000 in a day.

VaR is a helpful tool for understanding risk and making informed investment decisions!

How It Works:

1. The indicator calculates the percentage difference between consecutive bars.

2. The differences are sorted, and the VaR is determined based on the assurance level you specify.

3. A label displays the VaR value on the chart, indicating the potential maximum loss with the selected assurance level within one period eg - ( 1h, 4h , 1D, 1W, 1M etc as per your chart timeframe )

Key Features:

- Customizable Assurance Level:
Set the confidence level (e.g., 95%) to determine the probability of loss.

-Historical Approach:
Uses the past percentage changes in price to calculate the risk.

-Clear Insights:
Displays the calculated VaR value on the chart with an informative tooltip explaining the risk.

Use this tool to better understand your market exposure and manage risk!