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