You're headed in the right direction. To help you out:

I am trying to catch the moment when zscore > or <-4.

• Use order_target methods to scale as your portfolio grows, instead of blindly buying/selling: https://www.quantopian.com/help#api-order-methods

Then stop all the trading,

• You can check if len(context.portfolio.positions) > 0, meaning your portfolio contains positions: https://www.quantopian.com/help#api-portfolio
  
• If this condition is true, don't trade

wait until these two stocks finally converged or profit reaches 10%, clear all the positions.

• Check the profit using context.portfolio.pnl
  
• Close the positions by doing order_target(stock, 0)

Redo it again when zscore >4.

• this will get triggered in your trading logic, since len(context.portfolio.positions) is now 0
  

Put any initialization logic here. The context object will be passed to

the other methods in your algorithm.

def initialize(context):
context.stock1 = sid(14848)
context.stock2 = sid(47740)

Will be called on every trade event for the securities you specify.

def handle_data(context, data):
deviation = data[context.stock1].stddev(30)

if(deviation != None):  
    mean = data[context.stock1].mavg(30)  
    zscore = (data[context.stock1].price - mean) / deviation  

# for cash in context.portfolio.cash:
if context.portfolio.positions_value 4.0):
order_percent(context.stock1, -.5)
order_percent(context.stock2, .5)

    elif(zscore < -4.0) and context.portfolio.positions_value<1.1*context.portfolio.starting_cash:  
        order_percent(context.stock1, .5)  
        order_percent(context.stock2, -.5)  

def rebalance(context, data):

    elif context.portfolio.returns>1.1:  
        order_target(context.stock1, 0)  
        order_target(context.stock2, 0)  

elif(zscore > -4.0 or zscore < 4.0):

reduce_position(context.stock1, context.portfolio, all)

# reduce_position(context.stock1, context.portfolio, all)
# log.info("Positions reduced")

def reduce_position(stock, portfolio, abs_quantity):
"""
decrease exposure, regardless of position long/short.
buy for a short position, sell for a long.
"""
pos_amount = portfolio.positions[stock].amount
if pos_amount > 0:
order(stock, -1 * abs_quantity)
elif pos_amount < 0:
order(stock, abs_quantity)

I just fix the code. But the algo does not close the position. Do you know why? Thank you!