Wednesday, September 2, 2009
Choppiness Index vs. ADX
I just wanted to mention that in my testing I have found Bill Dreiss's Choppiness Index to be far superior to ADX. ADX is supposed to measure the strength of a trend, but the CI does more by telling you how orderly price is moving using fractal geometry. I just started live trading small positions this month with an automated strategy. Hopefully the volatility will start to pick up a bit as traders come back from vacation.
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4 comments:
Just found your blog via google.
I am preparing a post on my blog (automated-trading-system.com) on using fractal calculation to filter trend following trades. My conclusion was that
Do you have any reference on the Choppiness index - I would be interested in using something like that since fractal calculation is fairly complicated.
Thanks
Jez
What was your conclusion? I'll email you the Tradestation code for computing the Choppiness Index but you'll have to convert it to TradersStudio.
oops - sorry Rick. I just realised that I missed the most important bit in my comment... And I did not see you reply until now..
Anyway what I noticed was that the hurst coefficient (calculated/estimated via the rescaled range method over several periods of the timeseries) did not produce much deviation from 0.50 (pure random walk) and my initial reaction was that it was not really applicable to systems trading (at least for what I wanted to use it). But I did not go very deep in my investigation..
Thanks again for the code - should be easy to convert to TradersStudio (even wwithout the auto-converter tool).
One way traders will use the Average Directional Index (ADX) in their technical analysis is as a confirmation of whether or not a security is trending, and to avoid choppy periods in the market where many find it harder to make money. In addition to a period where the ADX is below 20.
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Forexyard
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