Base rate
How often has a week like this happened before, and what does that frequency tell a trader?
In plain words
A base rate is simply how often an event has occurred in the past, given as a share or frequency of comparable cases. For a market week, it asks how many prior weeks were as bad, or as extreme, as the one you are looking at.
Why it matters
A large move feels unique while it is happening, but markets repeat extremes more often than intuition suggests. Knowing the base rate keeps a rare-feeling event in proportion and prevents both complacency and panic.
In a real week: BTC, week of 10 May 2021
In the week of 10 May 2021, BTC fell 20.28%, with a range of 35.77% and realised volatility of 108.2% a year. Measured against 169 weeks of history, that return ranked at the 2.0 percentile, meaning roughly three of those prior weeks were comparably or more severe. The extreme was unusual, but not without precedent.
A common mistake
Treating a low base rate as impossible. A week that happens only a few times in years still happens, and the frequency says nothing about whether the next week will be one of them.