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Signal to Noise Trend

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Signal to Noise Ratio
The Signal to Noise Ratio or SNR is used to assess the quality of information or data by comparing the strength of a useful signal to the presence of background noise or random variations.

In Finance the SNR refers to the ratio of strength of a trading signal to the background noise. A high SNR suggest a clear and reliable signal, meanwhile a low SNR indicates more noise (random fluctuations, volatility, or randomness).

Signal To Noise Trend

This indicator basically calculates the signal to noise of returns and then gets the Z-Score of the signal to noise ratio to find extremes levels of signal and noise. The Lines basically are standard deviations from the mean. 1,2,3 Are standard deviations same with the -1,-2,-3 Lines.

The signal is expressed as the positive Z-Score value, and the Noise is the negative Z-Score Value.

The moving average enhances the indicator ability to display the trend of returns and the trend strength. It provides a smooth representation of the Signal to Nose Ratio values.

There are more trending conditions when there is a higher signal, and there is more "ranging" conditions when there is more noise present in the markets.

The Standard deviations help find extreme levels of signal and noise. If the noise reaches the standard deviation of -3 then that means that there is a extreme negative deviation from the mean, and this would be a rare occurrence, with a lot of noise. This could indicate a potential reversion in market states, and could be followed by a trending move.

Another example is that if the Z-Score value reaches a Standard deviation of 3, this could mean that there is extremely strong and rare signal, and could potentially mean a change to a more noisy environment soon.