Choppiness Index

 

#regime #rangedetection 

Inventor: E.W. (Bill) Dreiss 

Tells you whether the market is trending or just churning sideways, on a scale of 0 to 100. High readings mean choppy sideways action; low readings mean a directional trend. Important: it says nothing about direction, only about the type of market. 

Default period: 10

Rising line indicates market getting choppier. Falling line indicates market getting more directional. 

This indicator does not give direction. Use it as a filter for other signals. 

Useful readings: 

Above 61.8: Very choppy, range market, use oscillators not trend tools 

Below 38.2: Trending market, use trend-following tools 

Between 38.2 and 61.8: Mixed conditions, no strong bias 

Falling from above 61.8: Range breaking into a trend, trend signals turning reliable 

Rising from below 38.2: Trend dying into a range, book trend profits 

Long stay above 61.8: Energy building, expect a strong breakout 

Objective rules: 

Trend mode: Choppiness below 38.2, allow trend-following signals (SuperTrend, ADX, Donchian). 

Range mode: Choppiness above 61.8, allow range signals (RSI, Stochastic, Bollinger reversals). 

Breakout watch: Choppiness above 61.8 for 10+ bars, prepare breakout orders both sides 

Exit trend trades: Choppiness crosses above 61.8 while holding a trend position 

What makes it unique: 

It answers only one question – trending or churning – and refuses to say anything about direction. That single-purpose honesty makes it the cleanest regime filter available. 

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder of RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. Calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.