Multi-Period Z-Scores for Price Distance from Moving Averages
Summary
The document describes a chart indicator that measures the current price’s standardized distance from multiple moving averages. For a sequence of lookback periods formed by multiplying a base period, it calculates a separate Z-score using each average and its corresponding standard deviation. The plotted points use color to distinguish prices above or below their averages, and the indicator also forms a weighted aggregate and smooths it. Reference levels mark selected standard-deviation distances.
The author suggests that isolated readings beyond two standard deviations may be associated with a faster return toward the mean, while clusters of readings can show agreement across horizons. This is presented as an exploratory visual observation, not a tested trading rule. The document supplies neither performance statistics nor conditions for entries, exits, or risk controls; behavior may differ across chart types, time horizons, and markets, so the proposed mean-reversion interpretation needs independent testing.
Key ideas
- The indicator calculates price Z-scores against multiple moving averages with progressively longer lookbacks.
- Color distinguishes readings above the averages from readings below them.
- A weighted combination of the readings is smoothed to summarize the multi-period view.
- The author suggests that extreme isolated readings may precede mean reversion, but provides no backtest to establish this.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.