Choppiness Index
Trend
Measures whether the market is trending or directionless. The indicator says nothing about direction — only whether it makes sense to trade with the trend.
In its original form this indicator uses volume and/or the daily range (High/Low). The scanner only has closing prices and approximates those inputs (see the note at the bottom). So treat the absolute values as indicative; the direction and the crossings remain usable.
Construction & calculation
- Compare the sum of the daily True Ranges over 14 days with the total distance covered (highest minus lowest over those same 14 days).
- If the price travels a lot but barely gets anywhere, the market is choppy and the index moves toward 100.
- If the price runs in a straight line, the sum of the ranges nearly equals the net distance and the index drops toward 0.
CHOP = 100 x log10( sum(TR,14) / (highest(14) - lowest(14)) ) / log10(14)
Interpretation
- Above 61.8 (Fibonacci): the market is sideways and directionless. Trend systems lose money here; mean reversion works better.
- Below 38.2: the market moves efficiently in one direction. An ideal climate for trend followers.
- A spike above 61.8 often precedes a breakout: the spring is being wound.
How the signal works in this scanner
Buy signal (green)The index has dropped below 38.2 within the last 15 bars and is still below it — the market is trending efficiently. Note: this does not say in which direction.
Sell signal (red)The index has broken above 61.8 and is still above it — extremely choppy, trend signals are unreliable now.
Watch-outs & pitfalls
- The 'bull' and 'bear' labels here are merely color codes for 'trending' versus 'directionless'. The Choppiness Index is directionless by nature — always combine it with a directional indicator.
- Use it above all as a filter: take buy and sell signals from other indicators more seriously when CHOP is low.