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

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

Reply

HPotter
PRO
Algokid

You are welcome

Reply

coondawg71
PRO

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

Reply