Z Score Band

2022년 11월 12일

This is a band based on Z Score. What is Z Score? In layman's terms it's a method of finding outliers within a sequence of numbers. It's highly effective to quantify pump and dumps in the crypto market.



The middle line is a simple Exponential Moving Average, you can configure this with whatever period you prefer. It comes default with a period of 247 to which I find suitable for my style of trading. The upper and lower bound are determined by the standard deviation you choose in the settings, it comes with a default of 1.69 although I've heard people saying 2.5 is a better number to really pinpoint outliers.

Trading with this indicator is like trading with any band based indicator. The main difference is that this indicator's sole purpose when I wrote it is to help me find shorting positions in the futures market. On the contrary though, longs are also achievable although I rarely long the futures market.

If prices hit the upper bound and get rejected, it's probably because the move was an outlier, it doesn't happen often and when it does usually it reveals crypto's nature of buying spot and hedging short in the futures market. When prices stay above the upper bound, switch to a higher timeframe until we can see that it's still have some ways upwards.

What's true about using this as a shorting tool is also true with longs. However, it might not be as effective, I'd like to be proven wrong.