Is a big negative z-score a problem?

[Giovanni Gramegna]

I noticed most ea in the market often display from -3 to -10 z-score. I new ea I'm working on obtained this result:

Honestly, I read different and contrasting opinions about the meaning of z-score. I'd be happy if someone could explain in a schematic way like: big negative/small negative/around 0/small positive/large positive.

Thank you!

[Ryan L Johnson]

Giovanni Gramegna:

I noticed most ea in the market often display from -3 to -10 z-score. I new ea I'm working on obtained this result:

Honestly, I read different and contrasting opinions about the meaning of z-score. I'd be happy if someone could explain in a schematic way like: big negative/small negative/around 0/small positive/large positive.

Thank you!

• "Z-Score — series testing (the probability of correlation between trades). The series testing allows to estimate the degree of correlation between trades and evaluate whether the trade history includes more/less periods of consecutive profits/losses than normal distribution implies. The detected correlation allows to apply the methods of money management and/or change the trading system algorithm to maximize profit and/or to remove the dependence. Both non-finding the real correlation and finding a nonexistent correlation between trades are dangerous. The Z score indicates deviation from normal distribution in the sigma. A value above 3 indicates that a win will be followed by a loss with the probability of 3 sigma (99.67%). A value below -3 indicates that a win will be followed by a win with the probability of 3 sigma (99.67%)."

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[Giovanni Gramegna]

Ok but how knowing that the next trade will be a winner or a loser will be useful? Makes no sense to me. Some say the score is the distance from the normal curve, meaning how much the ea performance is distant from making casual trades. In this interpretation, the more distant from 0 (+ or -) the better. It means trades are non-casual. 

[Ryan L Johnson]

Giovanni Gramegna #:
Ok but how knowing that the next trade will be a winner or a loser will be useful? Makes no sense to me. Some say the score is the distance from the normal curve, meaning how much the ea performance is distant from making casual trades. In this interpretation, the more distant from 0 (+ or -) the better. It means trades are non-casual. 

I suspect that you got your beneficial distance interpretation from a trader who evaluates individual stocks. Distant z-scores are considered beneficial for individual stocks or a group of stocks due to the high volatility of the stock markets. In contrast, distant z-scores are considered detrimental to a forex strategy. The low volatility of the forex market generally requires a strategy with longer term stability in order to generate consistent returns.

The info in my Post #1 is straight from the official MT5 Help pages. MT5 is mainly geared toward forex trading, although I like to use it for exchange-based futures trading. I should note that both exchange-based futures and off-exchange CFD's should probably be evaluated according to the z-score principle that applies to each contract's underlying asset (or mimicked asset in the case of a CFD).