Volatility indicators helps us identify if the market is trending or not. The indicator we want to expose today is the Choppiness Index (CHOP).
Choppiness Index is an indicator designed to determine if the market is trading sideways. It is a metric to define the market trendiness only. A higher value means more choppiness, while lower values indicate directional trending.
The choppiness index was created by Australian E.W. Dreiss.
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
Let’s combine the choppiness index with the ema crossover strategy we created before. We’ll use the moving averages to determine the trend (7 cross over 25) and then verify if we are trending (choppiness index below 45).
if ema 7 is above ema25 AND candle before was below AND CHOP < 45 AND volume > 10 units AND candle open > 130 units (units will be in your base pair) then BUY if ema 7 is below ema25 AND candle before was above OR Profit = 15% OR Profit = -10 then SELL
How does it look like
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As always, feel free to backtest and modify the strategy to obtain better results.