Choppiness Index trading indicator

Choppiness Index (CHOP) – an indicator designed to determine if the market is choppy or trending.

Formula:

CHOP=100*LOG10(SUM(ATR(1),n)/(MaxHi(n)-MinLo(n)))/LOG10(n)

n = User defined period length.
LOG10(n) = base-10 LOG of n
ATR(1) = Average True Range (Period of 1)
SUM(ATR(1), n) = Sum of the Average True Range over past n bars
MaxHi(n) = The highest high over past n bars

Key takeaways:

1. CHOP is an example of an indicator that is not directional at all.
2. Higher values of CHOP indicate more choppiness, while lower values indicate directional trending.
3. Technical analysts can use CHOP to confirm current market conditions and anticipate changes in the market's trendiness.

Counterarguments:

1. CHOP is not meant to predict future market direction.
2. It is important to combine CHOP with additional charting tools and analysis to accurately identify when a range or trend is likely to continue and when it is likely to reverse.