AI Probability Cone
A machine-learning model that projects the probable price range for the next N candles based on historical volatility patterns, option chain data, and momentum factors. Displayed as a confidence cone.
What is the AI Probability Cone?
The AI Probability Cone is a proprietary NixPulse indicator that uses a machine learning ensemble model to project the probable price range over the next N candles (default: 5). The model outputs three confidence bands:
- Inner cone (50% confidence): 50% of the time, price will stay within this range
- Middle cone (75% confidence): 75% probability range
- Outer cone (90% confidence): 90% — the extreme scenario boundaries
The cone is anchored to the current price and expands rightward as uncertainty grows.
How the Model Works
The model combines:
1. Historical Volatility: EWMA-based 20-period realized volatility
2. Options Implied Volatility: Extracted from the Nifty/BankNifty option chain (where available)
3. Momentum State: Current RSI, MACD histogram, ATR regime
4. Seasonal Patterns: Day-of-week and time-of-day volatility adjustments
5. Regime Detection: Classifies current market as trending, mean-reverting, or explosive
Parameters
| Parameter | Default | Description |
|---|---|---|
| Horizon | 5 | Number of future candles to project |
| Confidence Levels | 50/75/90 | Probability bands to display |
| IV Source | Auto | Use live IV if available; fallback to HV |
| Model | Ensemble | XGBoost + LSTM blend |
Interpreting the Cone
Narrow cone → Low expected volatility; range-bound conditions
Wide cone → High expected volatility; trending or news-driven environment
- When price breaks above the 90% upper band → Extreme upside surprise; potential momentum chase
- When price breaks below the 90% lower band → Extreme downside; panic selling possible
- The midline of the cone represents the model's best-estimate path
Use Cases
- Options traders: Use the 75% cone width as a guide for strangle/straddle strike selection
- Intraday traders: Set profit targets at the 50% band; hard stops outside the 90% band
- Position traders: The 5-bar daily cone shows the week's expected range
Backtested Performance
The cone has been backtested on Nifty 50 constituents from 2019–2024:
- 50% band accuracy: 54.2% (expected: 50%) — slight positive bias
- 75% band accuracy: 77.8% (expected: 75%) — statistically significant edge
- 90% band accuracy: 91.1% (expected: 90%) — highly calibrated