160 ZAPO

The APO indicator aims to capture the price deviance from a mean (MACD, does a similar think). APO then yields an absolute value, which carries two problems, 1) within a given stock it is hard to determine is the deviance is large or small, 2) the indicator cannot be compared among stocks. ZAPO calcualtes a Z-score on the APOs, which allows to reinterpret the APO in terms of the number of standard deviations prices is above or below the mean. This allows to assess is the APO is large or small, which being comparable among stocks.

Any price reversal, should in principle coincide with an extreme ZAPO value.

Figure 14.30: ZAPO