Z-score
How do traders turn a raw price move into a number that says how unusual it really was?
In plain words
A z-score counts a move in units of how much the market normally moves. You divide the move by the typical variation seen over the asset's history. The result shows how many multiples of that typical variation the move represents, so a large number stands out much more than one near zero.
Why it matters
Raw percentage moves are hard to compare across assets or timeframes because each has its own baseline of ordinary fluctuation. Expressing a move as a z-score lets a large number on a calm asset be read against a smaller number on a volatile one, and it helps set expectations for how far a market might travel from an average.
In a real week: ETH, week of 29 March 2021
In the week of 29 March 2021, ETH rose 23.03% from its open of 1687.16 to its close of 2075.69, with realised volatility of 67.9% a year. The move's return percentile against 163 weeks of history was 95.0, placing it in the upper tail of that distribution. The weekly range was 27.9%, with a low of 1677.85 and a high of 2146.00, and the largest one-hour move was 3.12%.
A common mistake
Treating the z-score as a forecast that an extreme reading must reverse towards average. A high z-score describes rarity in the past window, not the direction the market will take next.