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Paul Cote wrote:
Realtraders:
I would like to know if anyone has a method for determining or
evaluating the choppiness of the market in order to determine a
choppiness index. This will be to switch the trading system from
say a
volatility breakout to a trend following system when a strong trend
comes underway.
Dear Paul:
Robert Barnes published a volatility index called "Directional Relative
Volatility" in his book Trading Choppy Markets, Richard D. Irwin
Publishers, 1997. This is the "choppiness index" I think you're looking
for. I confess that I have been unable to utilize it myself because I cannot
yet quite grasp the practical application (makes me feel a bit dense, but
I'm still working on it). Nevertheless, you might review the concept for
yourself. The index seems to show promise for identifying trendedness vs.
choppiness, so as to enable one to apply a trend-following system or a
contrarian system. If someone comes up with another response to your post,
I'd love to hear about it. (Maybe Robert Barnes will surface here on RT
and give us a seminar!)
Jim Oliver
San Francisco
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