Z-Score

Glossary · Quant & Stats

Z-score measures how far a value sits from its average, in units of standard deviation. A z-score of +2 means the reading is two standard deviations above its mean — rare territory if the data is roughly normal. Traders apply z-scores to price, funding rates, and basis to flag stretched readings that historically tend to snap back.

"It's how you tell 'this funding rate is high' from 'this funding rate is historically unhinged'."

The formula is (current value minus the mean) divided by the standard deviation, over your chosen lookback — and the lookback is the whole game, since a 90-day z-score and a one-year z-score can disagree about the same reading. Rough map: within ±1 is normal noise, past ±2 is stretched, past ±3 is rare. It works on anything with a history — price distance from a moving average, funding rates, basis, the ETH/BTC ratio.

The trap is treating ±3 as an automatic fade. Crypto's distributions are fat-tailed — extreme readings show up far more often than a normal curve promises, and in a regime shift the mean itself relocates, so you can short a 'three-sigma' breakout the entire way up. Use z-scores to rank how unusual a reading is, not as a standalone trigger. A stretched funding z-score into resistance is a setup; a stretched z-score alone is a statistic.

Spot the stretched funding rates

Related jargon

Questions

What is Z-Score in crypto trading?

Z-score measures how far a value sits from its average, in units of standard deviation. A z-score of +2 means the reading is two standard deviations above its mean — rare territory if the data is roughly normal. Traders apply z-scores to price, funding rates, and basis to flag stretched readings that historically tend to snap back.

How would a trader say it?

It's how you tell 'this funding rate is high' from 'this funding rate is historically unhinged'.

Part of the Crypto Jargon glossary — every term, decoded the way a trader would say it.

Crypto Jargon

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