The Z-Score Indicator is a powerful tool used in technical analysis to measure how far a data point is from the mean value of a dataset, measured in terms of standard deviations. This indicator helps traders identify potential overbought or oversold conditions in the market.
This user manual provides a comprehensive guide on how to use the Z-Score Indicator in TradingView.
- Set the thresholds based on your asset (number of standard deviations that you consider being extreme for this asset / timeframe).
- Red background indicates a possible overbought situation, green background an oversold one.
- The color and direction of the Z-Score Line acts as a confirmation of the trend reversal.
1. Indicator Overview
The Z-Score Indicator, also known as the Z-Score Oscillator, is designed to display the Z-Score of a selected financial instrument on your TradingView chart. The Z-Score measures how many standard deviations an asset's price is from its mean (average) price over a specified period.
The indicator consists of the following components:
- Z-Score Line: This line represents the Z-Score value and is displayed on the indicator panel.
- Background Color: The background color of the indicator panel changes based on user-defined thresholds.
The indicator provides several customizable inputs to tailor it to your specific trading preferences:
- Number of Periods: This input allows you to define the number of periods over which the Z-Score will be calculated. A longer period will provide a smoother Z-Score line but may be less responsive to recent price changes.
- Z-Score Low Threshold: Sets the lower threshold value for the Z-Score. When the Z-Score crosses below this threshold, the background color of the indicator panel changes accordingly.
- Z-Score High Threshold: Sets the upper threshold value for the Z-Score. When the Z-Score crosses above this threshold, the background color of the indicator panel changes accordingly.
3. How to Use the Indicator
Here are the steps to use the Z-Score Indicator:
- Adjust Parameters: Modify the indicator's inputs as needed. You can change the number of periods for the Z-Score calculation and set your desired low and high thresholds.
- Interpret the Indicator: Observe the Z-Score line on the indicator panel. It fluctuates above and below zero. Pay attention to the background color changes when the Z-Score crosses your specified thresholds.
4. Interpreting the Indicator
- Z-Score Line: The Z-Score line represents the current Z-Score value. When it is above zero, it suggests that the asset's price is above the mean, indicating potential overvaluation. When below zero, it suggests undervaluation.
- Background Color: The background color of the indicator panel changes based on the Z-Score's position relative to the specified thresholds. Green indicates the Z-Score is below the low threshold (potential undervaluation), while red indicates it is above the high threshold (potential overvaluation).
- Z-Score Line Color: The color of the Z-Score line shows that the Z-Score is trending up compared to its moving average. This can be used as a validation of the background color.
5. Customization Options
You can customize the Z-Score Indicator in the following ways:
- Adjust Inputs: Modify the number of periods and the Z-Score thresholds.
- Change Line and Background Colors: You can customize the colors of the Z-Score line and background by editing the indicator's script.
If you encounter any issues while using the Z-Score Indicator, make sure to check the following:
- Ensure that the indicator is applied correctly to your chart.
- Verify that the indicator's inputs match your intended settings.
- Contact me for more support if needed
The Z-Score Indicator is a valuable tool for traders and investors to identify potential overbought and oversold conditions in the market. By understanding how the Z-Score works and customizing it to your preferences, you can integrate it into your trading strategy to make informed decisions.
Remember that trading involves risk, and it's essential to combine technical indicators like the Z-Score with other analysis methods and risk management strategies for successful trading.