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Choppiness Index Forex Technical Analysis and Choppiness Index Forex Trading Signals

Developed by E.W. Dreiss

 

Choppiness Index was designed to be an easy but practical indicator to help Forex traders to determine if the currency prices are trending or consolidating.

 

This Indicator is similar to ADX which is also designed to evaluate the strength or momentum of a trend and determine if the market is trending or consolidating.

Choppiness Index Indicator

 

The Choppiness Index uses a scale of between 0 and 100. It also typically uses upper and lower bands at 61.8 and 38.2 respectively.

 

This indicator is plotted by first calculating the true range for each period and then adding the values of n-periods.

 

Second, it calculates the highest value and lowest value over n-periods and calculates their difference.

 

Third, it divides the sum of the true ranges and calculates the base-10 logarithm of this value.

 

Finally, it divides this value by the base-10 logarithm of n-periods and multiplies the results by 100.

 

 

Forex Technical Analysis and Generating Forex Trading Signals

Choppiness Index is a directionless indicator meaning it does not determine in which direction the Forex market is moving.

 

Its basic principle is that the more heavily the market is trending over the last number of n-periods the closer to zero the Choppiness Index will be and the more heavily the market is consolidating that is moving sideways in a ranging or chopping manner, over the last n-periods the closer to 100 the Choppiness Index will be.

 

Indicator values of above 61.8 indicate that the market is ranging/ choppy (moving sideways and consolidating).

 

Higher values occur during/after a strong consolidation phase. Higher values could also be interpreted as a signal of a potential upcoming breakout after a significant consolidation has occurred.

 

Choppiness Index values of below 38.2 indicate that the market is trending.

 

Lower values occur during/after a strong trending phase. Lower values could also be interpreted as a signal of a potential upcoming consolidation and choppiness after a strong trend phase has occurred.

Forex Market Sentiment

The EURUSD is at a major support level, Open an account and start trading EURUSD which is oversold and at a major support level: Read The Article "Support and Resistance levels"

Another reason to start being bullish on the EURUSD and EURJPY is Risk Appetite vs The Risk Averse sentiment used when trading high yielding currencies vs the US Dollar and the Japanese Yen when world economies start reporting data that is supporting economic growth: Read The Article "Risk Appetite vs The Risk Averse"


Eurozone Economic Growth Gains Momentum in November - Eurozone economic growth accelerated to its fastest pace and was at an all-time high, order books grew and factories were prompted to add more workers and raise the prices of their goods as the economic environment in Europe grew the fastest as shown by economic data – November Composite PMI for manufacturing and services grew to the strongest in 18 months and was at an all-time high of 54.1, up from 53.3 in October. There are two PMI data reports - one for manufacturing and the other one for services. The PMI for manufacturing was at an all-time high of 34 months and rose to 53.7 in November while that of services rose to an all-time 11 months high of 54.1; Marking a strong expansion in economic growth and signaling that the recovery in Europe is continuing to gather momentum thanks to the €1.7 trillion quantitative-easing program being carried out by ECB in Europe. IHS Markit has said that companies are on boarding new staff at the fastest pace ever since 2008, as the prices of goods increased the most in five years as companies continued to pass the production cost to their consumers – the November PMI showed the steepest monthly increase in business activity with plenty of signs that the economic growth will continue to accelerate as the inflation in Europe continues to intensify steadily. Open an account and start trading EURUSD and EURJPY today.


Major Market Mover - Non Farm Payrolls on Friday: Open an Account Today and Trade NFP on Friday

First OPEC Deal on Oil production cut in 8 years fuels more risk appetite: Open an Account Today - Don't Miss Out on the trades


Read The Articles: Eurozone Economic Growth Gains Momentum in November - Fueling Risk Appetite in FX trading


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