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One clarification that resolves most confusion<\/h3>\n
The wiki phrases the trigger as “Current Zindex is greater than the value of Zindex Open.” Read literally, that would fail when the current Z-index is negative. In practice, the test is a magnitude comparison<\/strong>: |Current Zindex| > Zindex Open<\/code>. Zindex Open is the threshold expressed as a positive number (e.g. 2.0); the strategy fires when the spread has stretched at least that far from the mean, in either direction. The Current Zindex sign then determines which side gets long and which gets short.<\/p>\n<\/div>\n
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The two strategic camps \u2014 and one outlier<\/h2>\n
Every Direction mode encodes two decisions: when<\/strong> to open (the trigger condition) and which way<\/strong> to open (the leg assignment). Looking at all eight together, three patterns emerge:<\/p>\n\n- Fade the divergence<\/strong> (mean-reversion bet). The spread has stretched; the trade bets it returns to the mean. 5 modes:<\/strong> ZIndexBased, PriceBased, Buy1Sell2, Sell1Buy2, ZIndexSign.<\/li>\n
- Ride the divergence<\/strong> (momentum bet). The spread has stretched; the trade bets it will continue to stretch further. 2 modes:<\/strong> Reversed, ZIndexSignInv.<\/li>\n
- The outlier<\/strong> \u2014 Inversed. The trigger is flipped<\/em>: instead of waiting for the spread to stretch beyond the threshold, the trade opens while the spread is still inside<\/strong> the band, betting it will stretch outward. This is the only mode that fires near the mean rather than at the extremes.<\/li>\n<\/ul>\n
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![\"Matrix](\"https:\/\/bjftradinggroup.com\/wp-content\/uploads\/2026\/05\/sharptrader-direction-modes-matrix-1024x643.png\")
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Figure 1 \u2014 All 8 Direction modes at a glance. Gold border = fade-the-divergence (mean-reversion). Red border = ride-the-divergence (momentum). The Inversed card carries a “trigger flipped” marker because it enters while the spread is still inside the threshold band.<\/p>\n
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Mode-by-mode reference<\/h2>\n
Each mode below lists its trigger condition (when it fires), its leg-assignment rule (which side becomes the buy and which the sell), a concrete numeric example, and the kind of setup it is designed for.<\/p>\n
ZIndexBased FADE<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| > Zindex Open<\/code><\/p>\nAction<\/span> If Current Zindex \u2265 0 \u2192 sell<\/strong> left side, buy<\/strong> right side. If Current Zindex < 0 \u2192 buy<\/strong> left side, sell<\/strong> right side.<\/p>\nExample<\/span> Zindex Open = 2.0, Current Zindex = +2.3. The mode sells the left leg and buys the right leg, betting the spread reverts toward zero.<\/p>\nWhen to use<\/span> the default fade mode. Use when you trust the z-score sign as a clean directional signal and want symmetric behavior on both extremes of the spread. This is the most common starting configuration.<\/p>\n<\/div>\nPriceBased FADE<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| > Zindex Open<\/code><\/p>\nAction<\/span> If Current Ask on the left side > Current Ask on the right side \u2192 sell<\/strong> left, buy<\/strong> right. Otherwise \u2192 buy<\/strong> left, sell<\/strong> right.<\/p>\nExample<\/span> Zindex Open = 2.0, Current Zindex = +2.3. Left Ask = 1.0850, Right Ask = 1.2640. Since the right Ask is higher, the mode buys left and sells right.<\/p>\nWhen to use: When the \u03b2 (cointegration coefficient) is asymmetric enough that the raw Ask comparison is a more reliable direction signal than the z-score sign. Some traders prefer PriceBased on pairs where the two instruments trade at very different absolute price scales.<\/p>\n<\/div>\n
Buy1Sell2 FADE<\/span> ONE-SIDED<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| > Zindex Open<\/code> AND<\/strong> Current Zindex < 0<\/code><\/p>\nAction<\/span> Buy<\/strong> left side, sell<\/strong> right side. (Fixed direction; the mode does not enter when Current Zindex \u2265 0.)<\/p>\nExample<\/span> Zindex Open = 2.0, Current Zindex = \u22122.4. The mode buys left and sells right. If the current Z-index were +2.4, nothing opens.<\/p>\nWhen to use<\/span> When you only want to trade the negative-Zindex side of the spread. Practical reasons: directional regime view, broker margin asymmetry, or one-sided pair behaviour where only the lower-Zindex setups have historically been profitable.<\/p>\n<\/div>\nSell1Buy2 FADE<\/span> ONE-SIDED<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| > Zindex Open<\/code> AND<\/strong> Current Zindex \u2265 0<\/code><\/p>\nAction<\/span> Sell<\/strong> left side, buy<\/strong> right side. (Fixed direction; the mode does not enter when Current Zindex < 0.)<\/p>\nExample<\/span> Zindex Open = 2.0, Current Zindex = +2.4. The market sells on the left and buys on the right. If the current Z-index were \u22122.4, nothing opens.<\/p>\nWhen to use<\/span> The mirror image of Buy1Sell2 \u2014 when you only want positive-Zindex setups. Often paired with Buy1Sell2 on two separate strategy instances to run each side independently with different sizing.<\/p>\n<\/div>\nZIndexSign FADE<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| > |Zindex Open|<\/code> AND<\/strong> Current Zindex and Zindex Open share the same sign<\/p>\nAction<\/span> If Current Zindex \u2265 0 \u2192 sell<\/strong> left, buy<\/strong> right. If Current Zindex < 0 \u2192 buy<\/strong> left, sell<\/strong> right.<\/p>\nExample<\/span> Zindex Open is set to +2.0 (with explicit sign). Current Zindex = +2.4 \u2192 same sign \u2192 sells left, buys right. Current Zindex = \u22122.4 \u2192 opposite sign \u2192 nothing opens<\/em>.<\/p>\nWhen to use a stricter version of ZIndexBased? Use when you want the strategy to only trade in the direction the threshold was originally set for \u2014 useful for staged or directional pair entries where you don’t want the strategy to fire on the opposite extreme.<\/p>\n<\/div>\n
Reversed RIDE<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| > Zindex Open<\/code><\/p>\nAction<\/span> If Current Zindex \u2265 0 \u2192 buy<\/strong> left, sell<\/strong> right. If Current Zindex < 0 \u2192 sell<\/strong> left, buy<\/strong> right. (Opposite leg assignment to ZIndexBased.)<\/p>\nExample<\/span> Zindex Open = 2.0, Current Zindex = +2.3. The mode buys left and sells right, betting the spread continues to stretch further from the mean.<\/p>\nWhen to use<\/span> A momentum bet on the spread \u2014 the inverse of mean-reversion. Appropriate when the pair is going through a regime where divergences widen further before reverting (e.g. one currency in a sharp trend). Higher risk than fade modes because correlation breaks tend to fail in this direction first.<\/p>\n<\/div>\nZIndexSignInv RIDE<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| > |Zindex Open|<\/code> AND<\/strong> Current Zindex and Zindex Open share the same sign<\/p>\nAction<\/span> If Current Zindex \u2265 0 \u2192 buy<\/strong> left, sell<\/strong> right. If Current Zindex < 0 \u2192 sell<\/strong> left, buy<\/strong> right.<\/p>\nExample<\/span> Zindex Open = +2.0, Current Zindex = +2.4. Same sign and magnitude exceeded \u2192 buys left, sells right (ride the move).<\/p>\nWhen to use<\/span> Stricter version of Reversed \u2014 momentum bet, but only when the spread has stretched further in the originally-configured direction. The same-sign requirement filters out spurious opposite-extreme triggers.<\/p>\n<\/div>\nInversed RIDE<\/span> TRIGGER FLIPPED<\/span><\/h3>\n\n
Trigger<\/span> |Current Zindex| < Zindex Open<\/code> \u2014 note the inequality is flipped<\/strong>. The mode enters while the spread is inside<\/em> the threshold band, not beyond it.<\/p>\nAction<\/span> If Current Zindex \u2265 0 \u2192 buy<\/strong> left, sell<\/strong> right. If Current Zindex < 0 \u2192 sell<\/strong> left, buy<\/strong> right.<\/p>\nExample<\/span> Zindex Open = 2.0, Current Zindex = +0.6. Magnitude is inside the band \u2192 buys left, sells right, betting the spread will stretch outward.<\/p>\nWhen to use<\/span> Specialized momentum setup: you believe the spread is in a regime where small deviations expand into large ones rather than reverting. Effectively the opposite philosophy from every other mode \u2014 instead of waiting for an extreme, the mode enters early and rides the stretch. Used sparingly, in pairs with strong observed divergence-continuation behavior.<\/p>\n<\/div>\n
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Side-by-side comparison of all 8 modes<\/h2>\n
\n\n\n| Mode<\/th>\n | Trigger condition<\/th>\n | When Z \u2265 0<\/th>\n | When Z < 0<\/th>\n | Camp<\/th>\n<\/tr>\n<\/thead>\n |
\n\n| ZIndexBased<\/td>\n | |Z| > Open<\/code><\/td>\n| Sell L, Buy R<\/td>\n | Buy L, Sell R<\/td>\n | Fade<\/td>\n<\/tr>\n | \n| PriceBased<\/td>\n | |Z| > Open<\/code><\/td>\n| By raw Ask: higher Ask \u2192 sell, lower Ask \u2192 buy<\/td>\n | Fade<\/td>\n<\/tr>\n | \n| Buy1Sell2<\/td>\n | |Z| > Open<\/code> AND Z < 0<\/code><\/td>\nno entry<\/em><\/td>\n| Buy L, Sell R<\/td>\n | Fade<\/td>\n<\/tr>\n | \n| Sell1Buy2<\/td>\n | |Z| > Open<\/code> AND Z \u2265 0<\/code><\/td>\n| Sell L, Buy R<\/td>\n | no entry<\/em><\/td>\n| Fade<\/td>\n<\/tr>\n | \n| ZIndexSign<\/td>\n | |Z| > |Open|<\/code> AND same sign<\/td>\n| Sell L, Buy R<\/td>\n | Buy L, Sell R<\/td>\n | Fade<\/td>\n<\/tr>\n | \n| Reversed<\/td>\n | |Z| > Open<\/code><\/td>\n| Buy L, Sell R<\/td>\n | Sell L, Buy R<\/td>\n | Ride<\/td>\n<\/tr>\n | \n| ZIndexSignInv<\/td>\n | |Z| > |Open|<\/code> AND same sign<\/td>\n| Buy L, Sell R<\/td>\n | Sell L, Buy R<\/td>\n | Ride<\/td>\n<\/tr>\n | \n| Inversed<\/td>\n | |Z| < Open<\/code> \u00a0(flipped)<\/td>\n| Buy L, Sell R<\/td>\n | Sell L, Buy R<\/td>\n | Ride<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
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Which mode should you pick?<\/h2>\nThere is no single “correct” mode \u2014 the choice depends on what you believe about the pair’s behavior and what you want the strategy to do at each extreme. As a practical guide:<\/p>\n \n- Starting from zero on a new pair?<\/strong> Use ZIndexBased<\/strong>. It is the cleanest default fade and gives you symmetric entries on both sides of the spread.<\/li>\n
- Pair where the two instruments have very different price scales (different orders of magnitude)?<\/strong> Try PriceBased<\/strong>. It uses raw Ask comparison instead of z-score sign, which can be more reliable when \u03b2 is far from 1.0.<\/li>\n
- Want to run two independently-sized strategies, one per spread side?<\/strong> Run Buy1Sell2<\/strong> on one instance (negative side only) and Sell1Buy2<\/strong> on another (positive side only). This lets you size and stop each side independently.<\/li>\n
- Worried about false triggers when the spread crosses zero rapidly?<\/strong> Use ZIndexSign<\/strong>. It only fires when Current and Open share the same sign, filtering out opposite-side noise.<\/li>\n
- Trading a pair in a regime where divergences continue rather than revert?<\/strong> Reversed<\/strong> (or ZIndexSignInv<\/strong> for the stricter version). This is the momentum bet \u2014 higher variance, and you should size accordingly.<\/li>\n
- Specialized setups where you want to enter near the mean and ride outward?<\/strong> Inversed<\/strong> is the only mode that does this. Use sparingly and only with strong evidence the pair behaves this way.<\/li>\n<\/ul>\n
\n Three practical rules<\/h3>\n\n- Backtest the mode you are about to deploy.<\/strong> The Direction parameter is not interchangeable \u2014 the same pair can produce wildly different P&L curves under ZIndexBased vs Reversed. Re-run the optimization for whichever mode you intend to run live.<\/li>\n
- Match mode to the strategic thesis, not the historical P&L.<\/strong> If you cannot explain why<\/em> a mode should work on a given pair, don’t deploy it just because the backtest looked good. Mode selection should follow a thesis about the pair’s regime.<\/li>\n
- Don’t flip mode mid-session.<\/strong> Switching Direction while positions are open will leave you with positions opened under one rule set and an exit logic expecting another. Close everything cleanly before changing mode.<\/li>\n<\/ul>\n<\/div>\n
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Frequently asked questions<\/h2>\n\n What does \u201cCurrent Zindex > Zindex Open\u201d in the wiki actually mean?<\/div>\n \n It means |Current Zindex| > Zindex Open<\/code> \u2014 a magnitude comparison. Zindex Open is the threshold expressed as a positive number (e.g. 2.0), and the strategy fires when the spread has stretched at least that far from the mean, in either direction. The Current Zindex sign then determines which leg is the buy and which is the sell, depending on the selected Direction mode.<\/p>\n<\/div>\nWhat is the difference between ZIndexBased and PriceBased?<\/div>\n \n Both share the same trigger (|Z| > Open<\/code>) and both are fade modes. The difference is in how they decide the leg assignment. ZIndexBased<\/strong> uses the sign of the z-score: Z \u2265 0 means sell left \/ buy right, Z < 0 means the opposite. PriceBased<\/strong> ignores the z-score sign and compares raw Ask prices: the higher-priced side is sold, the lower-priced side is bought. Price-based is most useful when the two pair instruments have very different absolute price levels.<\/p>\n<\/div>\nWhen should I use Inversed?<\/div>\n | | | | | | | | | | |