Alpha Trading - Alpha Volatility Zscore - Coder Wolves
Alpha Trading Volatility Z-SCORE (AVZ)
Alpha Trading is a community built by traders, for traders. The development of our indicators follows this same premise. We make indicators that make trading more efficient. We are proud to bring you the Alpha Trading Volatility Z-Score (AVZ).
A Z-score is a numerical measurement that describes a value's relationship to the mean of a group of values. Z-score is measured in terms of standard deviations from the mean. If a Z-score is 0, it indicates that the data point's score is identical to the mean score. A Z-score of 1.0 would indicate a value that is one standard deviation from the mean. Z-scores may be positive or negative, with a positive value indicating the score is above the mean and a negative score indicating it is below the mean.
At Alpha Trading, we are always pushing ourselves. We have deployed Z -Score to the Mean of Returns (Rather than Price) in some of our other indicators.
On the AVZ we have applied a Z-Score to the Historic Volatility (HV), as a volatility model for HV we used the sample standard deviation of log returns. We have also added R (Correlation Coefficient) which allows the trader to turn this into a directional indicator. Can be used in a similar way to indicators such as the Alpha Volatility Radar, and the Coefficient of Variation on the Wolfsbane indicator.
Z-Score Plot - On the Z-Score plot we have added color gradient. Color grading is based on, how near/far the Z Score is from the Standard Deviation bands. Regular Z-Score plot is 2 colors, Blue shows the Z-Score, Pink shows when there is a Statistical Outlier on the Z-Score.
R - For the R (Displayed in Columns by default), this shows the the correlation between the asset you are trading and the Z-Score of Historic Volatility. This allows us to use the Alpha Trading Volatility and Correlation Scenarios.
We have added a customizable Deviation band and 3 confidence intervals, 90%, 95%, and 99% as well.
Basic Trade Signals
Volatility and Correlation Scenarios
• AVZ expansion + positive correlation = pump
• AVZ expansion + negative correlation = dump
• AVZ contraction + positive correlation = price moves down
• AVZ contraction + negative correlation = price moves up
• AVZ sideways + positive correlation = price moves down
• AVZ sideways + negative correlation = price moves up
Long - When Z-Score moves to the upside, which shows there is Volatility expansion, and the R is positively correlated.
Short – When Z-Score moves to the upside, which shows there is Volatility expansion, and the R is negatively correlated.
Refer to the above Volatility and Correlation Scenarios for other movements.
1st chart shows AVZ on regular mode without color grading and AVZ in line form. Chart also shows AVZ occurrences and the PA movement associated with it.
2nd chart shown AVZ on color grading mode and AVZ in stepline with diamonds form.
Alpha Trading is a community built by traders, for traders. The development of our indicators follows this same premise. We make indicators that make trading more efficient. We are proud to bring you the Alpha Trading Volatility Z-Score (AVZ).
A Z-score is a numerical measurement that describes a value's relationship to the mean of a group of values. Z-score is measured in terms of standard deviations from the mean. If a Z-score is 0, it indicates that the data point's score is identical to the mean score. A Z-score of 1.0 would indicate a value that is one standard deviation from the mean. Z-scores may be positive or negative, with a positive value indicating the score is above the mean and a negative score indicating it is below the mean.
At Alpha Trading, we are always pushing ourselves. We have deployed Z -Score to the Mean of Returns (Rather than Price) in some of our other indicators.
On the AVZ we have applied a Z-Score to the Historic Volatility (HV), as a volatility model for HV we used the sample standard deviation of log returns. We have also added R (Correlation Coefficient) which allows the trader to turn this into a directional indicator. Can be used in a similar way to indicators such as the Alpha Volatility Radar, and the Coefficient of Variation on the Wolfsbane indicator.
Z-Score Plot - On the Z-Score plot we have added color gradient. Color grading is based on, how near/far the Z Score is from the Standard Deviation bands. Regular Z-Score plot is 2 colors, Blue shows the Z-Score, Pink shows when there is a Statistical Outlier on the Z-Score.
R - For the R (Displayed in Columns by default), this shows the the correlation between the asset you are trading and the Z-Score of Historic Volatility. This allows us to use the Alpha Trading Volatility and Correlation Scenarios.
We have added a customizable Deviation band and 3 confidence intervals, 90%, 95%, and 99% as well.
Basic Trade Signals
Volatility and Correlation Scenarios
• AVZ expansion + positive correlation = pump
• AVZ expansion + negative correlation = dump
• AVZ contraction + positive correlation = price moves down
• AVZ contraction + negative correlation = price moves up
• AVZ sideways + positive correlation = price moves down
• AVZ sideways + negative correlation = price moves up
Long - When Z-Score moves to the upside, which shows there is Volatility expansion, and the R is positively correlated.
Short – When Z-Score moves to the upside, which shows there is Volatility expansion, and the R is negatively correlated.
Refer to the above Volatility and Correlation Scenarios for other movements.
1st chart shows AVZ on regular mode without color grading and AVZ in line form. Chart also shows AVZ occurrences and the PA movement associated with it.
2nd chart shown AVZ on color grading mode and AVZ in stepline with diamonds form.