Measuring Choppiness

Discussion in 'Technical Analysis' started by dima777, Aug 27, 2008.

  1. dima777


    I wonder what are the other methods to measure price choppiness....apart from it trading within a specified price range for a predefined period of time...
  2. Chop = squareroot(2*N/pi), where N is a number of unique price changes in a unit of time. The higher the number the less chop you have.
  3. Chop=Randomness

    Look for gausian principles.


    I like eating piiiii
  4. I hope you realize the result of your quip will be scores of dumb ass 20 somethings whipping out calculators trying to discover N. :D
  5. That's OK. The smart ones will befit, the dumb asses will not! :cool: :D
  6. dima777


    interesting where you go this one from....and can you please explain what you mean by unique price changes?
  7. dima777


    I always wonder why some of members on this board have to be plain rude in their remarks
  8. A unique price change is the event when previous((Bid + Ask)/2) <> current((Bid + Ask)/2). The formula is showing the mean expected price deviation in N steps. If the real price change is less than expected value the chop is high; however, if it is higher, than the directional move is prevailing.

  9. Instead of viewing my remarks as "rude' why not try to learn. In all liklihood (99.999%) I'm more experienced and profitable than you. That being said I'll give you a quick mini-thought that I get paid to give clients. A pro-bono for my "rudeness."

    First: It matters little what time frame you're looking at. "Chop" is relative (like everything eh?). Chop can be defined as in a range. The market has found value at a price point and the trade is just a random auction back and forth. Sellers dry up on the lows buyers dry up on the highs. No need for a definition-a simple look at a bar chart tells all. If you're using Bollinger bands you'll see the bands narrow and move sideways. You'll see a preponderance of bars move back and forth through your 21 period ma. Doesn't matter if it's a 1 minute or a monthly. Once again it's relative to your time frame. What ends the chop?

    For starters prices doing something that they didn't do before. If ES hasn't made a bigger move than 7pts one way or the other over x periods the moment the market moves 7.25 it's now done something not true to form. The profile has changed. Will there be follow through? Probably to some degree. Will there be massive follow through? There's no way of telling. All you can do is make the bet and put in a stop at a price that shouldn't be hit if the market is indeed going to expand it's usual range. I suggest you read Curtis Faith's Way of the Turtle for some simple break out formulas.

    Just accept that there's no right answers because you're dealing with unknowable outcomes. There's always going to be false breakouts that do nothing more than cause short covering and new longs to appear with their buying then checked by aggressive sellers laying in the weeds higher. Just set up your trades as much as you can with some idea of probabilities and let your positive expectancy smooth out the disappointments from so many individual bummers.
  10. I think that trading indexes on breakout is unnecessarily risky and somewhat painful. Unless, of course, you're the kind of guy who likes to draw a crowd by holding your hand over a flame.

    The thing about free advice is that sometimes you get less that what you pay for.
    #10     Aug 27, 2008