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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. I would like the system to be predominantly a
> volatility breakout of say some fraction of the 3 day average true range
> from the prior days high and low. This system would exit either on the
> next days open or within a week at a specified target. What I have seen
> with these systems though is they do not do anything to catch the larger
> moves because you are exiting on strength. My idea is to add a
> choppiness index so that if choppiness is low, to switch to a longer
> term channel breakout.
>
> I have read in the secrets of the master's book that Randy Stuckey uses
> such an index to switchover catscan.
>
> Any Help from System Designers greatly appreciated.
>
> Paul Cote
Paul,
The well known Wilder's ADX was designed for this purpose i.e., to indicate trending
and non-trending periods. There are several other indicators that serve the same
purpose such as the Choppiness Index based on chaos theory by Bill Dreiss of Fractal
Wave Algorithm (FWA) fame.
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,-._|\ Richard
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