Expected Value Monte Carlo

I created this indicator after noticing that there was no Expected Value indicator here on TradingView.
The EVMC provides statistical Expected Value to what might happen in the future regarding the asset you are analyzing.

It uses 2 quantitative methods:

• Historical Backtest to ground your analysis in long-term, factual data.
  
• Monte Carlo Simulation to project a cone of probable future outcomes based on recent market behavior.
  

This gives you a data-driven edge to quantify risk, and make more informed trading decisions.

The indicator includes:

• Dual analysis: Combines historical probability with forward-looking simulation.
  
• Quantified projections: Provides the Expected Value ($ and %), Win Rate, and Sharpe Ratio for both methods.
  
• Asset-aware: Automatically adjusts its calculations for Stocks (252 trading days) and Crypto (365 days) for mathematical accuracy.
  
• The projection cone shows the mean expected path and the +/- 1 standard deviation range of outcomes.
  
• No repainting
  

Calculation:
1. Historical Expected Value:
This is a systematic backtest over thousands of bars. It calculates the return Rᵢ for N past trades (buy-and-hold). The Historical EV is the simple average of these returns, giving a baseline performance measure.
Historical EV % = (Σ Rᵢ) / N
2. Monte Carlo Projection:
This projection uses the Geometric Brownian Motion (GBM) model to simulate thousands of future price paths based on the market's recent behavior.
It first measures the drift (μ), or recent trend, and volatility (σ), or recent risk, from the Projection Lookback period. It then projects a final return for each simulation using the core GBM formula:
Projected Return = exp( (μ - σ²/2)T + σ√T * Z ) - 1
(Where T is the time horizon and Z is a random variable for the simulation.)
The purple line on the chart is the average of all simulated outcomes (the Monte Carlo EV). The cone represents one standard deviation of those outcomes.

The dashed lines represent one standard deviation (+/- 1σ) from the average, forming a cone of probable outcomes. Roughly 68% of the simulated paths ended within this cone.
This projection answers the question: "If the recent trend and volatility continue, where is the price most likely to go?"

Here's how to read the indicator

• Expected Value ($/%): Is my average trade profitable?
  
• Win Rate: How often can I expect to be right?
  
• Sharpe Ratio: Am I being adequately compensated for the risk I'm taking?
  

User Guide

• Max trade duration (bars): This is your analysis timeframe. Are you interested in the probable outcome over the next month (21 bars), quarter (63 bars), or year (252 bars)?
  
• Position size ($): Set this to your typical trade size to see the Expected Value in real dollar terms.
  
• Projection lookback (bars): This is the most important input for the Monte Carlo model. A short lookback (e.g., 50) makes the projection highly sensitive to recent momentum. Use this to identify potential recency bias. A long lookback (e.g., 252) provides a more stable, long-term projection of trend and volatility.
  
• Historical Lookback (bars): For the historical backtest, more data is always better. Use the maximum that your TradingView plan allows for the most statistically significant results.
  
• Use TP/SL for Historical EV: Check this box to see how the historical performance would have changed if you had used a simple Take Profit and Stop Loss, rather than just holding for the full duration.
  

I hope you find this indicator useful and please let me know if you have any suggestions. 😊