In Episode 408 of Trading Talk, we introduce a new statistical volatility function known as the Z-Lock. This function is designed to detect unusually large market movements by applying log returns, mean calculations, and standard deviation into a single Z-score-based framework.
Unlike traditional volatility measures that rely on simple percentage changes, the Z-Lock converts price movement into a standardised format. This allows traders to objectively identify when price action deviates significantly from its recent behaviour, while also maintaining directional awareness.
Why Log Returns Matter
Log returns provide a more mathematically consistent way of measuring price movement, especially across different price levels and instruments. By using log returns rather than raw percentages, the Z-Lock ensures volatility calculations remain stable and comparable over time.
Turning Volatility into a Directional Signal
By converting volatility data into a Z-score, the Z-Lock highlights when market movement reaches statistically extreme levels. Positive Z-scores identify strong upward moves, while negative Z-scores highlight strong downward pressure — all without the need for additional indicators.
This makes the Z-Lock particularly useful as a standalone volatility filter or as a supporting condition within algorithmic trading systems.
What’s Coming Next
This episode introduces the logic and purpose behind the Z-Lock. In next week’s Trading Talk, we will walk through the full build process and show how to implement the function inside Trade View X.
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