Volume Z-Score

TL;DR. (this bar's volume − the average volume of the last n bars) / their standard deviation. 0 is an ordinary bar; above 2 is unusually heavy; below −1 is unusually quiet. One scale for every instrument and time of day the window covers.

#What it measures

• Unusual participation. How far this bar's volume is from what the last n bars traded, in units of how much volume usually varies.
• Volume on a common scale. Raw Volume differs wildly between markets and sessions. The score says "heavy for here and now" on any of them.
• Not direction. A heavy bar can be buying or selling. Read the bar's direction or price action beside it.

#Formula

#Inputs in AlgoLift

#Recommended periods

• 10 (fast): Bursts against the last few bars.
• 20 (default): The usual volume window.
• 50 to 100 (slow): Heavy against a longer stretch, which on intraday bars spans the session's quiet and busy hours.

#Outputs in AlgoLift

#How to read it

• Above 2: a heavy bar for this window. Breakouts on heavy volume tend to carry further than breakouts on ordinary volume.
• Above 3 at the end of a long move: often a climax, where the last buyers or sellers rush in.
• Below −1: a quiet bar. Pullbacks on quiet volume are often pauses, not reversals.
• Around the open and close: intraday volume has a daily shape. A short window compares the open with the quiet bars before it and scores it high every day.

#Best in, worst in

Best in breakout confirmation and climax detection, where "more than usual" is the whole question.

Worst in markets with a strong daily volume shape and a short window, where the score mostly measures the time of day.

#Three setups

#1. Confirmed breakout

AND a breakout (price crossing above the 20-bar high through a Crossover node) with Volume Z above 2 in a Comparison node, so the strategy trades only breaks the market took part in.

#2. Quiet pullback

In an uptrend, buy a pullback bar only when its Volume Z is below 0: the dip happened on light trading, more likely a pause than a reversal.

#3. Climax exit

Exit a long through Set Exit Condition when Volume Z is above 3 on a bar that closes in its lower half, a sign the rally's last buyers have arrived.

#Common mistakes

• Ignoring the time of day. A 20-bar window on 5-minute bars scores every open as heavy. Restrict the rule with a Time Window or use a longer period.
• Reading direction into it. Volume Z has no sign of its own for buying or selling; a heavy down bar and a heavy up bar score the same.
• Tuning the threshold on one market's history. A rule that needs exactly 2.3 has fitted the past (overfitting in trading).