Z-Score Predictive Zones [AlgoPoint]

Z-Score Predictive Zones [AlgoPoint]

This indicator is an advanced evolution of the classic Z-Score (Standard Score) oscillator. Unlike traditional Z-Score indicators that use static overbought/oversold levels (e.g., +2.0 or -2.0), this script utilizes a dynamic memory system to identify where the market statistically tends to reverse based on recent history.

It provides a dual-view system: it displays the oscillator in the bottom pane and simultaneously projects those statistical extremes onto the main chart as Predictive Support and Resistance Zones.

1. Underlying Concept & Math
The core calculation is based on the Standard Score formula: Z = (Price - Mean) / Standard Deviation

- Adaptive Thresholds: The script detects pivot points (peaks and troughs) in the Z-Score history. It stores the most recent reversals (based on user-defined depth) and calculates the average level where the market has historically reversed.

- Reverse Engineering (Price Projection): The script takes these average Z-Score reversal levels and reverse-engineers the formula to find the corresponding price on the main chart: Projected Price = Mean + (Target Z * Standard Deviation)

- Noise Reduction: The raw Z-Score is smoothed using a Volume Weighted Moving Average (VWMA) to reduce false signals.


2. Key Features
Dynamic Predictive Zones (Main Chart):
- Red Zone (Resistance): Represents the price area where the Z-Score hits its historical average peak.
- Green Zone (Support): Represents the price area where the Z-Score hits its historical average trough.

Note: These zones expand and contract based on market volatility (Standard Deviation).

Dual Visualization:
- Bottom Pane: Shows the Z-Score oscillator with the calculated dynamic steps.
- Main Chart: Uses force_overlay=true to draw the corresponding price channels directly on the candles, allowing for real-time price action analysis.
- RSI Gradient Coloring: The oscillator line changes color based on RSI (Relative Strength Index) values to provide additional momentum context (Purple/Blue gradients).
- Signal Dots: Plots small circles on the main chart when the price enters these extreme statistical zones, indicating a potential mean reversion opportunity.


3. How to Use
This indicator is best used for Mean Reversion strategies.
- Potential Short: When price enters the Red Zone (Upper Channel) and a red dot appears, the price is statistically overextended relative to its recent volatility profile.
- Potential Long: When price enters the Green Zone (Lower Channel) and a green dot appears, the price is statistically undervalued relative to the mean.
- Trend Warning: If the price candles close forcefully beyond these zones and the zones begin to widen rapidly, it may indicate a breakout or a strong trend initiation rather than a reversal.


4. Settings
- Z-Score Length: The lookback period for the Mean and Standard Deviation.
- Lookback Depth: How many past reversal points the script should "remember" to calculate the average zones.
- Reversal Thresholds: The minimum Z-Score value required to register a peak or trough as a valid data point.
- Visuals: Toggle signal dots on/off.