By TickDistill — order-flow microstructure signals. Educational content, not financial advice.
A raw number like “a 200-contract order” or “$3M of buying” means nothing on its own. The useful question is “how unusual is this, here, right now?” Sigma-normalization answers exactly that: it re-expresses a measurement as how many standard deviations it sits from its own recent distribution. The output is a z-score — a measure of rarity, not of magnitude.
Fixed, absolute thresholds fail in two directions at once:
Sigma-normalization solves both: by dividing by the local standard deviation, “big” always means “big relative to what this market has been doing lately.” The signal becomes comparable across assets and adaptive across regimes — without you re-tuning anything.
A normalization is only honest if its yardstick uses only the past. If the standard deviation is computed using data from after the signal moment — even by accident — the backtest looks brilliant and the live signal disappoints. This is look-ahead bias, and it is the most common way order-flow research fools itself.
TickDistill computes every baseline causally (rolling, past-only) and excludes recurring mechanical windows that would otherwise distort the statistics — for example an index’s market-on-close auction, or a perpetual’s funding settlements, where huge volume appears for structural reasons rather than informational ones. We treat point-in-time correctness as a hard rule, because a backtest you cannot trust is worse than no backtest at all.
Every TickDistill signal expresses its thresholds in sigma units, not raw numbers. That is why the same package behaves sensibly across our supported assets, why “rare” means rare, and why our backtests are built to be reproducible point-in-time. When you later tune a signal’s sensitivity (see signal knobs), you are moving a threshold in sigma — a number that keeps its meaning as markets change.
TickDistill sells clean, computed order-flow inputs — not trading advice or guaranteed alpha. Backtests are illustrative and not a promise of future results.