OPEN-SOURCE SCRIPT

Smart Trader, Episode 04, by Ata Sabanci, Candles and Z Scores

Smart Trader, Episode 04
Candles and Z-Scores: A Statistical Approach to Market Analysis

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OVERVIEW

This indicator applies Z-Score statistical analysis to measure how unusual current market conditions are compared to historical norms. It simultaneously analyzes five key metrics: Price, Total Volume, Buy Volume, Sell Volume, and Delta (Buy minus Sell). The system detects 60 academically-researched market scenarios and provides visual feedback through Z-Lines (support/resistance levels), Event Markers, Trend Channels, and a comprehensive Dashboard.

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CORE CONCEPT: WHY Z-SCORE?

A Z-Score measures how many standard deviations a value is from its mean. In financial markets, extreme Z-Scores indicate statistically rare events that often precede significant price movements.

Mathematical Formula:
Z = (Current Value - Mean) / Standard Deviation

Interpretation:
• Z ≥ +2.0: Extremely high (occurs approximately 2.5% of the time)
• Z ≥ +1.0: Above average
• Z ≈ 0: Normal (near the mean)
• Z ≤ -1.0: Below average
• Z ≤ -2.0: Extremely low (occurs approximately 2.5% of the time)

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ACADEMIC FOUNDATION

This indicator is inspired by / grounded in market microstructure literature (abbreviated citations in-script) from market microstructure literature:

• Price-Volume Relationship - Karpoff (1987), Journal of Financial and Quantitative Analysis, Cambridge
Volume is positively correlated with price change magnitude

• Order Flow Imbalance - Cont, Kukanov, Stoikov (2014), Journal of Financial Econometrics
Order imbalance drives price more reliably than raw volume

• Informed Trading (PIN Model) - Easley, Kiefer, O'Hara, Paperman (1996), Journal of Finance
Buy/Sell imbalance reveals informed trader activity

• Mixture of Distributions - Tauchen & Pitts (1983), Clark (1973)
Volume clusters with volatility regimes

• Volume Predictability - Gervais, Kaniel, Mingelgrin (2001)
Volume shocks predict future returns

• Liquidity & Order Imbalance - Chordia, Roll, Subrahmanyam (2002)
Order imbalance affects short-term returns

• Volume-Return Dynamics - Llorente, Michaely, Saar, Wang (2002)
Speculation vs. risk-sharing patterns

• Reversal vs. Continuation - Campbell, Grossman, Wang (MIT)
High volume predicts lower autocorrelation

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VOLUME ENGINE

The indicator offers two methods for decomposing total volume into Buy and Sell components:

Method 1: Geometry (Approximation)
Uses candle structure to estimate buying and selling pressure:
Buy Volume = Total Volume × (Close - Low) / (High - Low)
Sell Volume = Total Volume × (High - Close) / (High - Low)
• Works on all instruments without additional data requirements
• Fast calculation
• Less precise than intrabar method

Method 2: Intrabar (Precise)
Uses Lower Timeframe (LTF) tick/second data to aggregate actual up-ticks versus down-ticks:
• More accurate volume decomposition
• Requires LTF data availability
• Configurable LTF: 1T (tick), 1S, 15S, 1M

Delta Calculation:
Delta = Buy Volume - Sell Volume

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Z-SCORE SYSTEM

The system calculates Z-Scores for five metrics simultaneously, using a configurable lookback period (default: 20 bars):

• Zp (Price Z-Score): Measures price deviation from its mean
• Zv (Volume Z-Score): Measures total volume deviation
• Zbuy (Buy Volume Z-Score): Measures buying pressure deviation
• Zsell (Sell Volume Z-Score): Measures selling pressure deviation
• ZΔ (Delta Z-Score): Measures order flow imbalance deviation

Threshold Constants:
• ZH (Z High) = 2.0: Extreme threshold
• ZM (Z Medium) = 1.0: Moderate threshold
• Z0 (Z Zero) = 0.5: Near-zero threshold

Group System:
The analysis window is divided into groups (default: 5 groups × 20 bars = 100 bar total window). Group numbers (1, 2, 3...) are displayed above candles when enabled, helping identify the relative age of detected levels.

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Z-LINES (SUPPORT/RESISTANCE LEVELS)

When any metric reaches an extreme Z-Score, the system marks that price level as a significant support or resistance zone.

Detection Logic:
• Upper Z-Line: Drawn from the HIGH when Z ≥ upper threshold (default +2.0)
• Lower Z-Line: Drawn from the LOW when Z ≤ lower threshold (default -2.0)

Multi-Metric Detection:
Z-Lines can be triggered by any of the five metrics (Price, Volume, Buy, Sell, Delta). When multiple metrics trigger at similar price levels, they are clustered together into a single combined label showing all contributing metrics.

Persistence:
Z-Lines persist for the entire analysis window (Period × Groups bars) and are NOT removed when price touches them. This allows traders to see historical support/resistance levels that may still be relevant.

Anti-Overlap System:
Labels are automatically repositioned to prevent overlap. The "Label Min Gap (%)" setting controls minimum vertical separation between ALL labels (both upper and lower), ensuring readability even when multiple levels cluster together.

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EVENT DETECTION ENGINE (60 SCENARIOS)

The system analyzes 60 distinct market scenarios based on Z-Score combinations. Each scenario is derived from academic research and assigned a confidence score based on signal strength and alignment.

Notation:
• Zp = Price Z-Score
• Zv = Total Volume Z-Score
• Zbuy = Buy Volume Z-Score
• Zsell = Sell Volume Z-Score
• ZΔ = Delta Z-Score
• dirP = Price direction (+1 if Zp > 0.5, -1 if Zp < -0.5, else 0)
• [1] = Previous bar value
• ZH = 2.0 (High threshold)
• ZM = 1.0 (Medium threshold)
• Z0 = 0.5 (Zero threshold)

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CATEGORY A: PRICE-VOLUME (Events 1-10)
Based on: Karpoff (1987), Tauchen-Pitts (1983), Clark (1973)
─────────────────────────────────────────────────────────────

Event 1: Breakout Confirmed
|Zp| ≥ ZH AND Zv ≥ ZH AND sign(ZΔ) = dirP AND dirP ≠ 0
Direction: Bullish/Bearish (follows price direction)

Event 2: Trend Strength Confirmed
|Zp| ≥ ZH AND Zv ≥ ZH
Direction: Follows price direction

Event 3: Fragile Move
|Zp| ≥ ZH AND Zv ≤ -ZM
Direction: Warning (price move without volume support)

Event 4: Weak Rally
Zp ≥ ZH AND Zv ≤ -ZH
Direction: Warning (price up without volume)

Event 5: Weak Selloff
Zp ≤ -ZH AND Zv ≤ -ZH
Direction: Warning (price down without volume)

Event 6: Momentum Build
ZM ≤ |Zp| < ZH AND Zv ≥ ZH
Direction: Follows price direction

Event 7: Churn
|Zp| ≤ Z0 AND Zv ≥ ZH
Direction: Neutral (high volume, low price movement)

Event 8: Quiet Compression
|Zp| ≤ Z0 AND Zv ≤ -ZH
Direction: Neutral (low volume, low price movement)

Event 9: High Volume Regime
Zv ≥ ZH
Direction: Neutral

Event 10: Low Volume Regime
Zv ≤ -ZH
Direction: Neutral

─────────────────────────────────────────────────────────────
CATEGORY B: ORDER-FLOW / DELTA (Events 11-16)
Based on: Cont, Kukanov, Stoikov (2014), Easley, Kiefer, O'Hara, Paperman (1996)
─────────────────────────────────────────────────────────────

Event 11: Imbalance Drives Price
|ZΔ| ≥ ZH AND sign(ZΔ) = dirP AND dirP ≠ 0
Direction: Follows price direction (dirP), with delta alignment required

Event 12: Divergence Top
Zp ≥ ZH AND ZΔ ≤ -ZH
Direction: Warning (distribution at top)

Event 13: Divergence Bottom
Zp ≤ -ZH AND ZΔ ≥ ZH
Direction: Warning (accumulation at bottom)

Event 14: Absorption Positive
|Zp| ≤ Z0 AND Zv ≥ ZH AND ZΔ ≥ ZH
Direction: Bullish (buy absorption, support forming)

Event 15: Absorption Negative
|Zp| ≤ Z0 AND Zv ≥ ZH AND ZΔ ≤ -ZH
Direction: Bearish (sell absorption, resistance forming)

Event 16: Depth Wall
Zv ≥ ZH AND |ZΔ| ≥ ZH AND |Zp| ≤ Z0
Direction: Neutral (market depth absorbing)

─────────────────────────────────────────────────────────────
CATEGORY C: BUY VS SELL (Events 17-23)
Based on: Easley, Kiefer, O'Hara, Paperman (1996), Chordia, Roll, Subrahmanyam (2002)
─────────────────────────────────────────────────────────────

Event 17: Aggressive Buy Dominance
Zbuy ≥ ZH AND ZΔ ≥ ZH AND Zsell ≤ -ZM
Direction: Bullish

Event 18: Aggressive Sell Dominance
Zsell ≥ ZH AND ZΔ ≤ -ZH AND Zbuy ≤ -ZM
Direction: Bearish

Event 19: Two-Sided Battle
Zbuy ≥ ZH AND Zsell ≥ ZH AND |ZΔ| ≤ Z0
Direction: Neutral (buyers and sellers equally strong)

Event 20: Battle with Buy Edge
Zbuy ≥ ZH AND Zsell ≥ ZH AND ZM ≤ ZΔ < ZH
Direction: Bullish

Event 21: Battle with Sell Edge
Zbuy ≥ ZH AND Zsell ≥ ZH AND -ZH < ZΔ ≤ -ZM
Direction: Bearish

Event 22: Hidden Accumulation
Zbuy ≥ ZH AND |Zp| ≤ Z0 AND Zv ≥ ZH
Direction: Bullish (buy shock without price movement)

Event 23: Hidden Distribution
Zsell ≥ ZH AND |Zp| ≤ Z0 AND Zv ≥ ZH
Direction: Bearish (sell shock without price movement)

─────────────────────────────────────────────────────────────
CATEGORY D: PREDICTABILITY (Events 24-26)
Based on: Gervais, Kaniel, Mingelgrin (2001), Karpoff (1987)
─────────────────────────────────────────────────────────────

Event 24: Volume Shock Positive Drift
Zv ≥ ZH AND |Zp| ≤ ZM
Direction: Follows price direction

Event 25: Volume Shock Negative Drift
Zv ≤ -ZH AND |Zp| ≤ ZM
Direction: Opposite to price direction

Event 26: Abnormal Volume Info Arrival
Zv ≥ ZH
Direction: Neutral

─────────────────────────────────────────────────────────────
CATEGORY E: REVERSAL VS CONTINUATION (Events 27-30)
Based on: Campbell, Grossman, Wang (MIT), Llorente, Michaely, Saar, Wang (2002)
─────────────────────────────────────────────────────────────

Event 27: High Vol Reversal Risk
Zv ≥ ZH
Direction: Warning (high volume implies lower positive autocorrelation)

Event 28: Low Vol Continuation Risk
Zv ≤ -ZH
Direction: Follows price direction (trend likely continues)

Event 29: Speculation Continuation
Zv ≥ ZH AND |ZΔ| ≥ ZM AND sign(ZΔ) = dirP AND dirP ≠ 0
Direction: Follows price direction

Event 30: Risk Sharing Reversal
Zv ≥ ZH AND |ZΔ| ≤ Z0
Direction: Warning (potential reversal)

─────────────────────────────────────────────────────────────
CATEGORY F: IMBALANCE LAG (Events 31-33)
Based on: Chordia, Roll, Subrahmanyam (2002)
─────────────────────────────────────────────────────────────

Event 31: Persistent Imbalance Push
|ZΔ| ≥ ZM AND |ZΔ[1]| ≥ ZM AND sign(ZΔ) = sign(ZΔ[1])
Direction: Follows delta direction (persistent pressure)

Event 32: Imbalance Pressure Decay
(ZΔ[1] ≥ ZM AND ZΔ ≤ -ZM) OR (ZΔ[1] ≤ -ZM AND ZΔ ≥ ZM)
Direction: Warning (imbalance sign flip)

Event 33: Intraday Imbalance Predicts
|ZΔ| ≥ ZM
Direction: Follows delta direction

─────────────────────────────────────────────────────────────
CATEGORY G: SUPPORT/RESISTANCE (Events 34-36)
Based on: Peskir (Manchester)
─────────────────────────────────────────────────────────────

Event 34: SR Barrier Event
|Zp| ≤ Z0 AND Zv ≥ ZH
Direction: Neutral (price stalls with high volume)

Event 35: Volume Backed SR Level
|Zp| ≤ Z0 AND Zv ≥ ZH AND |ZΔ| ≥ ZM
Direction: Follows delta direction

Event 36: Volume Poor SR Level
|Zp| ≤ Z0 AND Zv ≤ -ZM
Direction: Warning (weak S/R without volume)

─────────────────────────────────────────────────────────────
CATEGORY H: EXTENDED ANALYSIS (Events 37-50)
Based on: Extended market microstructure analysis
─────────────────────────────────────────────────────────────

Event 37: Climax Buy
Zbuy ≥ ZH AND Zp ≥ ZH AND Zv ≥ ZH
Direction: Warning (extreme buying exhaustion, potential top)

Event 38: Climax Sell
Zsell ≥ ZH AND Zp ≤ -ZH AND Zv ≥ ZH
Direction: Warning (extreme selling exhaustion, potential bottom)

Event 39: Stealth Accumulation
Zbuy ≥ ZM AND |Zp| ≤ Z0 AND Zv ≤ Z0
Direction: Bullish (quiet buying)

Event 40: Stealth Distribution
Zsell ≥ ZM AND |Zp| ≤ Z0 AND Zv ≤ Z0
Direction: Bearish (quiet selling)

Event 41: Volume Divergence Bull
Zp ≤ -ZM AND Zv ≤ -ZM
Direction: Bullish (price down but volume declining)

Event 42: Volume Divergence Bear
Zp ≥ ZM AND Zv ≤ -ZM
Direction: Bearish (price up but volume declining)

Event 43: Delta Price Alignment
|Zp| ≥ ZM AND |ZΔ| ≥ ZM AND sign(Zp) = sign(ZΔ)
Direction: Follows price direction (strong trend confirmation)

Event 44: Extreme Compression
|Zp| ≤ Z0 AND Zv ≤ -ZH
Direction: Neutral (very low volatility)

Event 45: Volatility Expansion
|Zp| ≥ ZH AND Zv ≥ ZH
Direction: Follows price direction (breakout from compression)

Event 46: Buy Exhaustion
Zbuy ≥ ZH AND Zp ≤ Z0
Direction: Warning (high buy but price fails)

Event 47: Sell Exhaustion
Zsell ≥ ZH AND Zp ≥ -Z0
Direction: Warning (high sell but price holds)

Event 48: Trend Acceleration
|Zp| ≥ ZM AND |Zp| > |Zp[1]| AND Zv ≥ ZM
Direction: Follows price direction (increasing momentum)

Event 49: Trend Deceleration
|Zp| ≥ ZM AND |Zp| < |Zp[1]| AND sign(Zp) = sign(Zp[1])
Direction: Warning (decreasing momentum)

Event 50: Multi Divergence
(Zp ≥ ZM AND ZΔ ≤ -ZM) OR (Zp ≤ -ZM AND ZΔ ≥ ZM) + |Zp| ≥ ZM AND Zv ≤ -ZM
Direction: Warning (multiple divergence signals)

─────────────────────────────────────────────────────────────
CATEGORY I: TREND-INTEGRATED (Events 51-60)
Based on: Combined price-volume-delta trend analysis
─────────────────────────────────────────────────────────────

Event 51: Trend Breakout Confirmed
|Zp| ≥ ZH AND Zv ≥ ZH AND |ZΔ| ≥ ZM AND sign(ZΔ) = dirP AND dirP ≠ 0
Direction: Follows price direction

Event 52: Trend Support Test
Zp[1] ≥ ZM AND Z0 ≤ Zp < ZM AND ZΔ ≥ Z0
Direction: Bullish (pullback in uptrend)

Event 53: Trend Resistance Test
Zp[1] ≤ -ZM AND -ZM < Zp ≤ -Z0 AND ZΔ ≤ -Z0
Direction: Bearish (rally in downtrend)

Event 54: Trend Reversal Signal
sign(Zp) ≠ sign(Zp[1]) AND |Zp| ≥ ZM AND |Zp[1]| ≥ ZM
Direction: Follows new price direction (momentum flip)

Event 55: Channel Absorption
|Zp| ≤ Z0 AND Zv ≥ ZH
Direction: Neutral (range-bound with volume)

Event 56: Trend Continuation Volume
|Zp| ≥ ZM AND Zv ≥ ZM AND sign(ZΔ) = dirP AND dirP ≠ 0
Direction: Follows price direction (healthy trend with volume)

Event 57: Trend Exhaustion
|Zp| ≥ ZM AND Zv ≤ -ZM AND |Zp| < |Zp[1]|
Direction: Warning (trend losing steam)

Event 58: Range Breakout Pending
|Zp| ≤ Z0 AND Zv ≤ -ZH AND |ZΔ| ≥ ZM
Direction: Follows delta direction (compression with imbalance)

Event 59: Trend Quality High
|Zp| ≥ ZM AND sign(ZΔ) = dirP AND Zv ≥ Z0 AND dirP ≠ 0
Direction: Follows price direction (strong aligned signals)

Event 60: Trend Quality Low
|Zp| ≥ ZM AND sign(ZΔ) ≠ dirP AND dirP ≠ 0
Direction: Warning (conflicting signals)

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TREND CHANNEL SYSTEM

The trend channel system is adapted from Smart Trader Episode 03 to provide consistent visual context for price action analysis.

How It Works:
• Divides the chart into blocks based on Z-Score groups
• Calculates OHLC (Open, High, Low, Close) for each block
• Detects Higher Highs/Higher Lows (uptrend) or Lower Highs/Lower Lows (downtrend) patterns
• Draws channel lines connecting block extremes
• Classifies by angle: steep angles indicate trends, flat angles indicate ranges

Channel Classifications:
• UPTREND: Higher highs and higher lows detected
• DOWNTREND: Lower highs and lower lows detected
• RANGE: Channel angle below threshold (default 10 degrees)

Label Information:
• Trend direction (UPTREND/DOWNTREND/RANGE)
• Channel boundary prices
• Distance from current price (absolute and percentage)
• Channel angle in degrees

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DASHBOARD

The dashboard provides a comprehensive real-time view of all Z-Score metrics and detected events.

Dashboard Sections:

1. Header Row
Displays indicator name and current calculation mode (CLOSED or LIVE).

2. Metric Rows (Price, Total Volume, Buy Volume, Sell Volume, Delta)
Each row displays:
• Value: Current metric value
• Z: Calculated Z-Score
• Visual: Graphical Z-bar showing position relative to mean
• Status: Interpretation (Extreme High, Above Avg, Normal, Below Avg, Extreme Low)
• Upper: Oldest active upper Z-Line in window (Label Mirror)
• Lower: Oldest active lower Z-Line in window (Label Mirror)

3. Event Detection Section
• Count of triggered events out of 60 total scenarios
• Market Bias: Bull/Bear/Neutral percentage with visual bar
• Strongest Event: Highest confidence event currently triggered
• #2 Event: Second highest confidence event

4. Footer
Shows engine type (Geometry/Intrabar), Z-Score period, calculation basis, and number of valid bars.

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ALERT SYSTEM

The indicator uses native alertcondition() functions, keeping the settings menu clean while providing comprehensive alert options in TradingView's alert dialog.

Available Alert Categories:
• Master Alerts: Any event, Any bullish, Any bearish, Any warning
• Single Event Alerts: Individual alerts for key events (Breakout, Climax, Divergence, etc.)
• Category Alerts: Alerts by event category (Price-Volume, Order-Flow, etc.)
• Confluence Alerts: 2+, 3+, 4+, or 5+ aligned events
• Bias Shift Alerts: 10%, 20%, or 30% shifts in market bias
• High Confidence Alerts: Events with 60%+, 70%+, 80%+, or 90%+ confidence
• Divergence Alerts: Price vs Volume or Price vs Delta divergences

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DATA ACCURACY AND LIMITATIONS

This indicator is 100% VOLUME-BASED and requires Lower Timeframe (LTF) intrabar data for accurate calculations when using the Intrabar method.

Data Accuracy Levels:
• 1T (Tick): Most accurate, real volume distribution per tick
• 1S (1 Second): Reasonably accurate approximation
• 15S (15 Seconds): Good approximation, longer historical data available
• 1M (1 Minute): Rough approximation, maximum historical data range

Backtest and Replay Limitations:
• Replay mode results may differ from live trading due to data availability
• For longer backtest periods, use higher LTF settings (15S or 1M)
• Not all symbols/exchanges support tick-level data
• Crypto and Forex typically have better LTF data availability than stocks

A Note on Data Access:
Higher TradingView plans provide access to more historical intrabar data, which directly impacts the accuracy of volume-based calculations. More precise volume data leads to more reliable calculations.

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LANGUAGE SUPPORT (TRI-LINGUAL UI)

This indicator includes a built-in language switch with three interface languages:
• English (EN)
• Türkçe (TR)
• 한국어 (KO)

The selected language updates key interface text such as the Dashboard headers/rows, tooltips, and the Event Engine outputs (event names, category names, and direction labels). Turkish diacritics and Korean Hangul are supported for clean, native readability.

Why only three languages?
Each additional language requires duplicating strings throughout the code, which increases script size/memory usage and compilation time. To keep the indicator optimized and responsive, language options are intentionally limited to three.

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⚠️ DISCLAIMER

FOR EDUCATIONAL AND RESEARCH PURPOSES ONLY

This indicator is designed as an educational and research tool based on academic market microstructure literature. It is NOT financial advice and should NOT be used as the sole basis for trading decisions.

Important Notices:
• Past performance does not guarantee future results
• All trading involves risk of substantial loss
• The indicator's signals are statistical probabilities, not certainties
• Always conduct your own research and consult qualified financial advisors
• The creator assumes no responsibility for trading losses

Research Sources:
This indicator is built upon peer-reviewed academic research from:
• Journal of Financial and Quantitative Analysis (Cambridge University Press)
• Journal of Finance
• Journal of Financial Econometrics
• MIT Working Papers
• arXiv Financial Mathematics

Skrip open-source

Dengan semangat TradingView yang sesungguhnya, pembuat skrip ini telah menjadikannya sebagai sumber terbuka, sehingga para trader dapat meninjau dan memverifikasi fungsinya. Salut untuk penulisnya! Meskipun Anda dapat menggunakannya secara gratis, perlu diingat bahwa penerbitan ulang kode ini tunduk pada Tata Tertib kami.

ata_sabanci

Measuring markets through Volume Dynamics & Geometric Frameworks.
For invite-only script access, DM on TradingView or via x.com/sabanci_ata

Juga di:

Pernyataan Penyangkalan

Informasi dan publikasi ini tidak dimaksudkan, dan bukan merupakan, saran atau rekomendasi keuangan, investasi, trading, atau jenis lainnya yang diberikan atau didukung oleh TradingView. Baca selengkapnya di Ketentuan Penggunaan.

Skrip open-source

ata_sabanci

Measuring markets through Volume Dynamics & Geometric Frameworks.
For invite-only script access, DM on TradingView or via x.com/sabanci_ata

Juga di: