Choppiness Index Analysis and Choppiness Index Signals

Created and Developed by E.W. Dreiss

Choppiness Index was built and designed to be an easy but practical indicator to help traders to determine if the gold 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 it is consolidating.

How Do I Add Trading Choppiness Index Trade Indicator on Chart?

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

This indicator is drawn by first calculating the true range for each period & then adding the values of n price periods.

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

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

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

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

Its basic principle is that the more heavier the market is trending over the last number of n-periods the closer to zero the Choppiness Index will be & the more heavier the market is consolidating that is heading sideways in a ranging or choppy 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 & consolidating).

Higher values occur during/after a strong consolidation phase. Higher values could also be interpreted as a trade signal of a potential upcoming break out after a significant consolidation has taken place.

Choppiness Index values of below 38.2 reflect 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 market trend phase has occurred.

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