Description:
The Choppiness Index is a technical analysis tool developed by Australian commodity trader Bill Dreiss to help traders determine whether a market is trending or ranging. The index measures the volatility of price movements, which can be a helpful indicator for traders and investors to assess the strength and direction of market trends.
Input Parameters:
- Length: Defines the window size for the Simple Moving Average (SMA).
- Upper: Presets to 60 which represents the upper boundary of the indicator.
- Lower: Presets to 40 which represents the lower boundary of the indicator.
Use Cases:
- Trending Markets: When the Choppiness Index value is low (usually below 38.2), it suggests the market is experiencing strong directional movement, which could be either upward or downward. This is considered a trending market, where traders can potentially benefit from taking positions in the direction of the trend.
- Ranging Markets: When the Choppiness Index value is high (usually above 61.8), it suggests that the market is experiencing a period of consolidation or sideways price movement. This is considered a ranging market, where traders may find it more challenging to identify clear entry and exit points based on price movements alone.
These features can be used in:
- Market Scanner
- Strategy Tester
- Multi-Factor Alerts
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.