The author of this indicator is Veronique Valcu. The z-score (z) for a data

item x measures the distance (in standard deviations StdDev) and direction

of the item from its mean (U):

z = (x-StdDev) / U

A value of zero indicates that the data item x is equal to the mean U, while

positive or negative values show that the data item is above (x>U) or below

(x Values of +2 and -2 show that the data item is two standard deviations

above or below the chosen mean, respectively, and over 95.5% of all data

items are contained within these two horizontal references (see Figure 1).

We substitute x with the closing price C, the mean U with simple moving

average ( SMA ) of n periods (n), and StdDev with the standard deviation of

closing prices for n periods, the above formula becomes:

Z_score = (C - SMA (n)) / StdDev(C,n)

The z-score indicator is not new, but its use can be seen as a supplement to

Bollinger bands . It offers a simple way to assess the position of the price

vis-a-vis its resistance and support levels expressed by the Bollinger Bands .

In addition, crossings of z-score averages may signal the start or the end of

a tradable trend. Traders may take a step further and look for stronger signals

by identifying common crossing points of z-score, its average , and average of average .

item x measures the distance (in standard deviations StdDev) and direction

of the item from its mean (U):

z = (x-StdDev) / U

A value of zero indicates that the data item x is equal to the mean U, while

positive or negative values show that the data item is above (x>U) or below

(x Values of +2 and -2 show that the data item is two standard deviations

above or below the chosen mean, respectively, and over 95.5% of all data

items are contained within these two horizontal references (see Figure 1).

We substitute x with the closing price C, the mean U with simple moving

average ( SMA ) of n periods (n), and StdDev with the standard deviation of

closing prices for n periods, the above formula becomes:

Z_score = (C - SMA (n)) / StdDev(C,n)

The z-score indicator is not new, but its use can be seen as a supplement to

Bollinger bands . It offers a simple way to assess the position of the price

vis-a-vis its resistance and support levels expressed by the Bollinger Bands .

In addition, crossings of z-score averages may signal the start or the end of

a tradable trend. Traders may take a step further and look for stronger signals

by identifying common crossing points of z-score, its average , and average of average .

//////////////////////////////////////////////////////////// // Copyright by HPotter v1.0 07/07/2014 // The author of this indicator is Veronique Valcu. The z-score (z) for a data // item x measures the distance (in standard deviations StdDev) and direction // of the item from its mean (U): // z = (x-StdDev) / U // A value of zero indicates that the data item x is equal to the mean U, while // positive or negative values show that the data item is above (x>U) or below // (x Values of +2 and -2 show that the data item is two standard deviations // above or below the chosen mean, respectively, and over 95.5% of all data // items are contained within these two horizontal references (see Figure 1). // We substitute x with the closing price C, the mean U with simple moving // average (SMA) of n periods (n), and StdDev with the standard deviation of // closing prices for n periods, the above formula becomes: // Z_score = (C - SMA(n)) / StdDev(C,n) // The z-score indicator is not new, but its use can be seen as a supplement to // Bollinger bands. It offers a simple way to assess the position of the price // vis-a-vis its resistance and support levels expressed by the Bollinger Bands. // In addition, crossings of z-score averages may signal the start or the end of // a tradable trend. Traders may take a step further and look for stronger signals // by identifying common crossing points of z-score, its average, and average of average. //////////////////////////////////////////////////////////// study(title="Z-Score", shorttitle="Z-Score") Period = input(20, minval=1) hline(0, color=purple, linestyle=line) xStdDev = stdev(close, Period) xMA = sma(close, Period) nRes = (close - xMA) / xStdDev plot(nRes, color=blue, title="Z-Score")

Algokid
PRO

2 years ago

Great stuff Porter...this will be very useful for statistical arbitrage. Thanks for sharing

Reply

HPotter
PRO
Algokid

2 years ago

You are welcome

Reply

coondawg71
PRO

2 years ago

Thanks. Very useful indicator! Could you possibly Normalize the data into price bars in a lower panel?

Reply