The Return Z-Score rule scores the latest N-bar simple return against the trailing mean and standard deviation of those returns. When the z-score is at or below −threshold, it fires buy; at or above +threshold, it fires sell.
Use it to react to crash or spike bars without tying the signal to the absolute price level. Prefer Price Z-Score when you care about how stretched the close is versus recent closes.
When to use it
- Fade one-bar (or multi-bar) return extremes
- Catch momentum continuation after unusually strong returns (with invert or higher thresholds)
- As a filter: only allow entries when the latest return is extreme in the matching direction
What you’ll set in the app
Add Return Z-Score under signal sections or under filters.
- Lookback — bars of return history for mean/σ (default 20)
- Return bars — horizon of each return sample (default 1)
- Z threshold — magnitude that triggers buy/sell (default 2)
Needs enough closes for lookback + return bars before it can fire.
Tips
- Return bars = 1 focuses on the latest candle’s move; larger N smooths the sample.
- Unlike Price Z-Score, a market that drifts slowly may never hit a price-level z but can still print extreme returns.
- Combine with volume or percentile filters if you want extremes only with confirming activity.
Example
Entry rules: Return Z-Score lookback 20, return bars 1, threshold 2. Buy after an unusually large down bar; sell after an unusually large up bar.