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Discussion about "Contrarian Z-Score" Concept
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Created: by thenckel Attachments:1

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Discussion about "Contrarian Z-Score" Concept

  #1 (permalink)
Elite Member
Australia
 
Futures Experience: Intermediate
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Broker/Data: AMP Futures/Zen-Fire
Favorite Futures: ES, FESX, FDAX, ER2, currency futures, oil
 
thenckel's Avatar
 
Posts: 5 since Apr 2010
Thanks: 0 given, 1 received

Discussion about "Contrarian Z-Score" Concept

Hi everyone,
today I came across the following analysis concept in Tradestation Labs:

Contrarian Z-Score
By Alexandra Guevara | Market Technician, TradeStation Labs
Summary
Standard deviation is a common statistical calculation that is often used in the world of finance to measure risk. The higher the standard deviation, the higher the overall risk or volatility. However, standard deviation can also be used as a basis for mean-reversion trading strategies.
In this Analysis Concepts paper, we will introduce a strategy and indicator that use standard deviation to calculate a z-score. A z-score is simply the number of standard deviations separating the current price from the mean price. The strategy then looks at the momentum of the average z-score and takes a contrarian approach to trading to generate buy and sell signals.


If you go to the following webpage
(https://www.tradestation.com/support/tslabs/default.aspx?report=14),
you can read in more detail about the concept, see some charts and even download the relevant Tradestation indicator.

I am wondering whether anyone applies this or a similar concept? I am naturally a bit contrarian (for better or for worse) and so this concept somehow appeals to me. The worry, of course, is that building a system around this concept alone will kill you in strongly trending markets. So perhaps one would have to add some filters? Anyway, I'm still thinking about it and would like to hear others' comments and opinions.

10 more sleeps till Chrissy...

thenc

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  #2 (permalink)
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  #3 (permalink)
Elite Member
Asia
 
Futures Experience: Beginner
Platform: NinjaTrader, TOS
 
Posts: 798 since Jun 2009
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I wrote this Indicator earlier this year.

Not sure how you would want to measure the momentum of the ZScore, though.

Hope it helps!

EDIT: Pulled the code as it can be downloaded in the Elite section. https://futures.io/free_downloads/vip_elite_circle/353-download.html?view

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Discussion about "Contrarian Z-Score" Concept-iwm-daily-2010-01-20-2010-12-15-zscore.jpg  

Last edited by MXASJ; December 15th, 2010 at 07:24 AM. Reason: Added JPEG of IWM Daily + ZScore Indicator
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  #4 (permalink)
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Cheshire/Kent/Oxfordshire
 
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I might find this useful. Will try it out later.

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