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Choppiness Index Analysis & Choppiness Index Signals

Developed by E.W. Dreiss

Choppiness Index was built and designed to be an easy but practical technical indicator to help the Gold traders to identify if the prices are trending or consolidating.

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

Choppiness Index Indicator MetaTrader 4 - How to Set Choppiness Index Indicator in Chart

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 drawn by first calculating the true range for each period & then adding the values of n-periods.

Second, it calculates the highest value and lowest value over n periods & 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 base-10 logarithm of n-periods and multiplies the results by 100.

Trading Analysis & Generating Signals

Choppiness Index is a directionless trading indicator meaning it does not determine in which direction the price is going.

Its basic principle is that the more heavily the market is trending over the last number of n-periods the closer to zero Choppiness Index indicator will be and the more heavily the market is consolidating that is heading sideways in a range or chopping manner, over the last n-periods the closer to 100 the Choppiness Index indicator 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 period. Higher values could also be interpreted as a signal of a potential upcoming break out after a significant consolidation has occurred.

Choppiness Index indicator values of below 38.2 reflect 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.

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