The Futures Z-Score Indicator can be used to determine overbought or oversold conditions for equities in the futures market.
According to its author, the Z-Score Band indicator uses “a period of 247” and a standard deviation of “1.69.” In the indicator settings, each of these values can be changed.
Futures Z-Score Indicator for ThinkorSwim
#Indicator Name: Futures Z-Score Indicator #Version: 1.0.0 #Developer: Melvin C. #URL: https://thinkscript101.com/futures-z-score-indicator-thinkorswim/ input length = 247; input deviation = 1.69; input price = close; def basis = ExpAverage(price, Length); def zscore = (price-basis)/StandardDeviation(price, Length); def diff = AbsValue(price - basis); def absZscore = AbsValue(zscore); def bounds = diff / absZscore * deviation; def upper = basis + bounds; def lower = basis - bounds; plot mid = basis; plot upper_band = upper; plot lower_band = lower;
How to Use
The Z-Score indicator forecasts future price fluctuations using the idea of mean reversion. The theory is that over time, the stock price will return to the mean.
This indicator consists of an upper, lower, and middle band. You might anticipate a potential pullback when the price reaches the upper band and struggle to move higher.
To go long, wait until there is a retest to the lower band and the security shows signs of reversal.