Standardizing MACD Components with Rolling Z-Scores

Summary

The document explains how to convert the MACD value, its signal average, and their difference into standardized scores. For each series, it calculates a rolling mean and standard deviation over a sample period, then expresses the current value as its distance from that mean in standard-deviation units. The example uses conventional MACD lengths and a 2,000-bar sample window, with reference levels from −3 to +3. It also notes that the approach can be adapted to other indicators.

These scores put readings in context relative to the indicator’s own recent history, which can help compare unusually high or low values across changing conditions. The document supplies implementation logic but no performance tests, trading rules, or evidence that particular score levels predict returns. Its default window and displayed bands may not suit every instrument or timeframe, so the author advises adapting them to the market’s period and volatility.

Key ideas

• The method standardizes MACD and its components using rolling means and standard deviations.
• A Z-score expresses a reading’s distance from its historical average in standard-deviation units.
• The example uses a 2,000-bar sample window and displays reference levels from −3 to +3.
• The same standardization approach can be applied to other indicators.
• The document offers no backtest or evidence that the scores alone generate profitable trades.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.