The ZScore Reversal strategy measures how far price deviates from a moving average in terms of standard deviations. The resulting Z-Score highlights statistically stretched conditions that may snap back toward the mean.
A trade is opened long when the Z-Score falls below a negative threshold, signalling an oversold market. A short trade is taken when the Z-Score rises above the positive threshold. The position is closed once the Z-Score crosses back through zero, indicating price has normalized.
This technique is attractive for mean reversion traders who prefer objective entry levels. The stop-loss percentage keeps adverse moves manageable while waiting for the reversion.
- Entry Criteria:
- Long: Z-Score < -Threshold
- Short: Z-Score > Threshold
- Long/Short: Both sides.
- Exit Criteria:
- Long: Exit when Z-Score crosses above 0
- Short: Exit when Z-Score crosses below 0
- Stops: Yes, percent stop-loss.
- Default Values:
- LookbackPeriod = 20
- ZScoreThreshold = 2.0m
- StopLossPercent = 2m
- CandleType = TimeSpan.FromMinutes(10)
- Filters:
- Category: Mean Reversion
- Direction: Both
- Indicators: Z-Score
- Stops: Yes
- Complexity: Intermediate
- Timeframe: Intraday
- Seasonality: No
- Neural networks: No
- Divergence: No
- Risk Level: Medium