The Choppiness Index ( CHOP ) is an indicator designed to determine if the grocery store is choppy ( trading sideways ) or not choppy ( trading within a tendency in either management ). The Choppiness Index is an exercise of an indicator that is not directing at all. CHOP is not meant to predict future grocery store guidance, it is a measured to be used to for defining the market ‘s trendiness only. A basic understand of the index would be ; higher values equal more choppiness, while lower values indicate directing swerve .
The Choppiness Index was created by australian commodity trader E.W. Dreiss .
100 * LOG10( SUM(ATR(1), n) / ( MaxHi(n) - MinLo(n) ) ) / LOG10(n) n = User defined period length. LOG10(n) = base-10 LOG of n ATR(1) = Average True Range (Period of 1) SUM(ATR(1), n) = Sum of the Average True Range over past n bars MaxHi(n) = The highest high over past n bars
- As a range-bound oscillator, The Choppiness Index has values that always fall within a certain range. CHOP produces values that operate between 0 and 100.
- The closer the value is to 100, the higher the choppiness (sideways movement) levels.
- The closer the value is to 0, the stronger the market is trending (directional movement)
- Often times, technical analysts will use a threshold on the higher end to indicate the market moving into choppiness territory. Likewise there will be a threshold in the lower zone to indicate trending territory. Common threshold values are popular Fibonacci Retracements. 61.8 for the high threshold and 38.2 for the lower threshold.
What to look for
Market Condition Confirmation
- The first way that technical analysts can use CHOP is to confirm current market conditions. With readings above the upper threshold, continued sideways movement maybe expected.
- Readings below the lower threshold may indicate a continuing trend.
Upcoming Trendiness Change
- The second practical use for CHOP is anticipating changes in the market’s trendiness. It is generally believed that extended periods of consolidation (sideways trading) are followed by an extended period of trending (strong, directional movement) and vice versa.
The Choppiness Index is an interesting system of measurement which can be useful in identifying ranges or trends. What analysts need to be leery of, is identifying when a range or swerve is probable to continue and when it is likely to reverse. The best way to accomplish this would be by combining CHOP with extra chart tools and analysis. For example, using CHOP in junction with course lines and traditional convention recognition .
The time period to be used in calculating CHOP ( 14 is the Default ).
Changing this number will move the CHOP either Forwards or Backwards relative to the current marketplace. 0 is the default .
Can toggle the visibility of the CHOP adenine well as the visibility of a price occupation showing the actual current price of the CHOP. Can besides select the CHOP Line ‘s color, production line thickness and ocular style ( Line is the Default ) .
Can toggle the visibility of the Upper Band ampere well as blue-ribbon its value, color, production line thickness and line style.
Can toggle the visibility of the Lower Band arsenic well as choice its value, semblance, line thickness and cable style .
Toggles the visibility of a Background color within the Bands. Can besides change the Color itself adenine well as the opacity .
Sets the issue of decimal places to be left on the indicator ‘s value before rounding up. The higher this number, the more decimal points will be on the indicator ‘s value .