Choppiness Index

The Choppiness Index (CHOP) is a technical indicator designed by Australian commodity trader E.W. Dreiss to determine whether the market is trending or moving sideways (choppy). It does not predict future price direction but rather characterizes the current market state, helping traders select appropriate strategies. The indicator oscillates between 0 and 100, with higher values (typically above 61.8) indicating a choppy, consolidating market and lower values (typically below 38.2) indicating a strong trending market. The boundaries of 38.2 and 61.8 are derived from Fibonacci ratios. The calculation uses the sum of True Range values over the lookback period (typically 14 days) relative to the total price range, applying a logarithmic transformation. The interpretation is straightforward: when CHOP is high, the market is consolidating energy, suggesting a breakout may be approaching (though the direction is unknown). When CHOP is low, the market is in a strong trend that may be nearing exhaustion. Traders use the Choppiness Index as a filter: in high-CHOP environments, they employ range-trading strategies (buying support, selling resistance), while in low-CHOP environments, they use trend-following strategies (breakout trading, momentum plays). It pairs well with directional indicators like ADX or MACD.