Measuring Choppiness

killthesunshine · Aug 29, 2008

how do you know it's choppy.. when you get stopped out a few times and it finally dawns on you..

"wow this is choppy!"

at that point you start playing the range.

hopefully sooner rather than later

dima777 · Aug 29, 2008

Quote from cuz69:

Guy, I don't praise myself on anything on this board, nor do I have time to debate or argue with you. You asked me why I thought so, so I gave you my answer, which seemed clear to a few people on the board.
You don't like my answer...........whatever.
Good Luck in finding your answer.
More...

thanks...and...bye

SicilianTM · Aug 30, 2008

Quote from MAESTRO:

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.
More...

My measure is much better.

It's Chop = squareroot(4*N/pi^2)

osorico · Aug 30, 2008

Quote from Pa(b)st Prime:

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.
More...

Good post Pa(b)st:

The simplicity of the markets.... It moves from price level to price level, end of story, with something like an 80/20 ratio of equilibrium/trending.

ET is so much more entertaining when people are rude! Oh well, it's all relative.

Osorico

Pa(b)st Prime · Aug 30, 2008

Quote from osorico:

Good post Pa(b)st:

The simplicity of the markets.... It moves from price level to price level, end of story, with something like an 80/20 ratio of equilibrium/trending.

ET is so much more entertaining when people are rude! Oh well, it's all relative.

Osorico
More...

Much appreciated.

dima777 · Aug 31, 2008

Quote from SicilianTM:

My measure is much better.

It's Chop = squareroot(4*N/pi^2)
More...

ok...lets continue with this line..
here is my mega formula for choppiness:

Dima's Choppiness Index (DCI):

SUM OF INDIVIDUAL BARS' ABSOLUTE(HIGH-LOW)/ABSOLUTE(RANGE HEIGHT) for the last 20 bars

your turn...

gkishot · Aug 31, 2008

I can guess that it might well be mere standard deviation from the mean for the given dataset. The smaller is the deviation the choppier is the market.

gkishot · Aug 31, 2008

But before you look at standard deviation you need to look first at the average price change from the previous day for the given dataset. It has to be near 0 for the choppy market.
So for a choppy market average price change should be near 0 and the standard deviation should be small. This is only my opinion.

IronFist · Sep 5, 2008

Measuring how choppy something was is useless.

I'm not one of those "boo hoo all indicators are lagging" people, but chop indicators do lag.

Come up with an indicator that tells me how choppy it's going to be and I'll give you some of my profits.

dima777 · Sep 9, 2008

I partially agree with you...i created a trend indicator with a choppy filter in it...the curious thing is by the time you have identified that the market is ranging (and you have moved to the sidelines)- it can be a few bars away from a major breakout...something akin to the bollinger bands squeeze....