Z-Score Trend Following with EMA and Standard Deviation
Summary
The strategy measures how far a selected price source is from its exponential moving average, scaled by the price standard deviation. It enters long when the Z-score crosses above a positive threshold and exits when it crosses below the negative threshold. The short rules reverse those crossings. The published defaults use equal 100-period windows for the average and deviation, a threshold of 1, and BTC/USDT futures for the stated backtest setup.
The document presents the approach as a simple way to identify statistically large price moves, but provides no performance results to support its effectiveness. It notes sensitivity to the threshold and lookback settings, false signals in sideways markets, and lag from trend-following entries and exits. Suggested extensions include volatility-adjusted thresholds, confirmation from other indicators, ATR-based position sizing, and signals across multiple timeframes. The backtest configuration alone does not establish profitability or robustness.
Key ideas
- The Z-score normalizes the gap between price and its EMA by the price standard deviation.
- A positive threshold crossing opens a long position, while a negative crossing closes it.
- Short entries and exits use the corresponding negative and positive threshold crossings.
- Parameter choices, ranging markets, and signal lag can reduce performance.
- The document suggests adaptive thresholds, added confirmation, position controls, and multiple timeframes for further study.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.