If you have reading through some of the posts here on this site; you’ll notice that we always bring to the trader's attention the importance of recognizing when the market is trending or when it’s ranging. Moving averaging crossover strategies word great but only when the market is trending. For a strategy to be successful, a component recognizing price action type is crucial. The Choppiness Index indicator is one of those tools that could be utilized for that. The user should research how this indicator could be utilized. Below, we are providing a summary of how to use it:
- Consolidation/Ranging: Readings above 61.8 implies a ranging market.
- Trend: Readings below 31.2 indicate the market may have entered the trending phase. This typically occurs when readings are declining from a ranging value.
- End of Trend: Not very popular but a reading declining below 30-25 indicates the trend is ending and may reverse course.
This indicator is readily available online, but we felt the versions online lacked some customization.
Choppiness Index Features:
- Cloud could be displayed for chop and trend zones.
- Custom smoothing could be applied to the curve to help reduce noise.
- Chop, trend, and end of trend limits could be customized in value by the user.
- A signal curve may be added to aid in identifying reversing signals.
- Custom moving average method along with a custom period could be customized for the signal curve.
Review the screenshots and video for setup options.
Click here for a list of all of Thinkorswim's downloads.
