BTC SOPR Z-Score

BTC SOPR Smoothed Z-Score Indicator

This indicator provides a comprehensive analysis of Bitcoin's Spent Output Profit Ratio (SOPR) by converting it into a Z-score, offering valuable insights into market conditions. The SOPR Z-score is calculated to identify how far the current SOPR value deviates from its historical average, helping to highlight overbought or oversold conditions in the market. To improve the signal quality, the Z-score is smoothed using an Exponential Moving Average (EMA).

Key Features:

SOPR Z-Score Calculation:

The indicator uses the Spent Output Profit Ratio (SOPR) from Glassnode and converts it into a Z-score using a user-defined lookback period.
This helps identify extreme deviations from the average SOPR, highlighting key opportunities for potential market reversals.
Smoothing for Signal Quality:

The Z-score is smoothed using an EMA to reduce market noise and provide a more stable visual representation.
The user can control the smoothing length for customizability, allowing for optimized analysis under different market conditions.
Standard Deviation Thresholds:

Horizontal lines at important standard deviation levels (+2, +1.2, -0.8, and -1.2) help identify significant market behaviors:
Above +2: Indicates the market may be overbought and a reversal could be near.
Between +1.2 and +2: Indicates strong bullish conditions.
Below -1.2: Indicates possible oversold conditions.
Between -1.2 and -0.8: Suggests bearish tendencies.
Visual Alerts with Background and Bar Coloring:

The indicator colors the background and bars to emphasize key moments in the market.
Red Background: The Z-score exceeds +2, suggesting overbought conditions.
Yellow Background: The Z-score is between +1.2 and +2, showing strong bullish activity.
Green Background: The Z-score drops below -1.2, indicating potential oversold conditions.
Aqua Background: The Z-score falls between -1.2 and -0.8, signaling bearish sentiment.
These visual cues help traders quickly assess the current state of the market and identify key opportunities or risks.
Use Cases:

This indicator can be used by traders to detect market extremes and potential turning points in Bitcoin's price by tracking deviations in SOPR.
The smoothed Z-score helps avoid reacting to short-term noise and instead captures the broader market trend.
Traders can leverage background and bar coloring to easily identify critical price action zones and plan entries or exits accordingly.
Customization:

Lookback Period: Users can adjust the lookback period for calculating the mean and standard deviation, allowing for fine-tuning based on trading style and timeframe.
Smoothing Length: The EMA smoothing length is adjustable, providing flexibility in how sensitive the Z-score is to recent changes in SOPR.
This indicator is ideal for traders looking to gain deeper insight into Bitcoin's profitability metrics, detect extremes in market sentiment, and make informed decisions based on data-driven signals.