Secret Swing Trading Indicator To Avoid Ranges | Choppiness Index Strategies


If you cannot tell whether a market is an
uptrend or downtrend on whatever time frame you are looking at, you will almost certainly
get chopped up if you trade it. Many traders make the mistake of swing trading
in all market condition but sometimes the markets are too choppy and erratic to trade
with any accuracy or effectiveness. The number one rule of successful swing trading
is taking positions in the direction of a primary trend, but not anytime, only when
the markets are moving and are not consolidating. In this video, you’ll discover a reliable
indicator you must pay attention to, if you want to swing trade with the momentum on your
side and avoid consolidating markets. Before we continue, if you are new to our
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your support. So, I’ve mentioned earlier about choppy
markets. I’m sure you know them very well. You enter a swing trading position and the
price action becomes range bound, and is moving sideways. No profits and the market just go up and down
for days, around your entry point. The Fact is 80% of the Time the Market is
Choppy and your job, as a trader is to find ways to identify when the market is trending
or not. One of the easiest ways to identify whether
the market is moving or ranging is by using the Choppiness Index. Choppiness Index is based on chaos theory
and fractal geometry. This indicator basically helps to identify
whether the market is choppy (meaning consolidating or trading sideways) or is trending. Unlike many other indicators, the Choppiness
Index is a directionless indicator. The value of Choppiness Index indicator ranges
between 0 and 100. A high reading in the Choppiness Index usually
happens when there is a significant consolidation in the price action. Here is how this simple indicator can help
you record better results when swing trading: Choppy: When the value of the indicator is
above 61.8, it means that the market is moving sideways, in a choppy (consolidating) manner. Usually, the trend continues to be sideways
as long as Choppiness index stays above 50 line. Pay attention to this example. Look at the Choppiness index reaching high
values and also look at the price action. Nothing but consolidation, sideways moves
and market indecision. So, the closer the value is to 100, the higher
the choppiness levels. Trending: When the value of the indicator
is below 38.2, it means that the market is trending. Usually, the stock remains trending as long
as Choppiness index stays below the mid 50 line. Let’s analyze another example. Observe that when the indicator shows lower
values, the market is moving nicely. So, the closer the value is to 0, the stronger
the market is trending. End of Trend: When the value of the indicator
is below 25, it could mean that the prevailing trend may come to an end very soon. Take this as a warning sign. This doesn’t mean that the price will reverse,
it may continue to move nicely, but you should take a closer look at price action and act
accordingly when potential reversals occur. Now, let’s see a couple of swing trading
techniques you can implement using the choppiness index. The first swing trading technique involves
buying or selling the Breakout after high Choppiness Index Readings. In swing trading, it is generally believed
that extended periods of consolidation (meaning sideways trading) are followed by an extended
period of trending (strong, directional movement) and vice versa. So, here is how you could trade this. When a stock is trending above the 61.8 level
for an extended period of time, this is a sign that the market is practically flat. A valid approach would be to wait for a fall
back below the 61.8 level to signal a trend inception. In this case, once the choppiness index fell
below that level, this coincided with a nice breakout, and the price rallied upwards. Take a look at this chart. We have the same pattern, but on the downside. Remember that the Choppiness index is non
directional, so high readings are traded the same for an uptrend or downtrend. Here the indicator breaks below the level,
after a prolonged period of choppiness, practically giving confirmation that the breakout was
valid. Another technique involving the Choppiness
index is riding the trend when the indicator shows values below 45. So, instead of using 2 levels, we focus on
just one. Basically, when the indicator’s line stays
below the 45 level for a long period, we look for swing opportunities in the direction of
the main trend. Don’t overcomplicate your trading, focus
on price action, support and resistance and maybe add a moving average for a better understanding
of the trend. So, in this chart, we have several buying
opportunities, when the Choppiness index is below 45 and the price is trading above the
moving average. Look how easy is to identify the trend using
this indicator. As long as the choppiness is at low levels,
your swing positions should be safe. Here are some short opportunities, as the
price is making consecutive lows and the choppiness index stays below 45. Also, the price stayed below the moving average,
confirming the downtrend. Remember to always have an exit plan, because
this indicator doesn’t provide the best exit signals. Another great way to swing trade with the
choppiness index is to combine it with volume. Where there is volume, there is likely something
to happen on the market. Volume is an important indicator that can
be used to confirm certain price movement. It is always positive to see increasing volume
when a stock is advancing. Likewise, it is good to see an increase in
volume during a breakout from a consolidation range. So, when we combine choppiness index with
the volume, we could have one of the strongest confirmation we need in order to take a trade. So, here we have a consolidation phase, with
sideways price action, relatively low volume and the high choppiness readings. Observe how the volume started to increase,
while the price was still in the range. Once the indicator’s line crossed below
the 61.8 level, the price broke the range moved upward. The volume confirmed the valid breakout, as
it increased gradually through the move. The same pattern here, but on the downside. Price action was indicating a range, low volume
which starts to increase once the price approaches the support line. The choppiness index at high levels. And the breakout, with the volume showing
increasing momentum. Remember that the Choppiness Index does not
predict future direction, it is simply a measure of current trend status. You could say that it also measures volatility,
but you cannot use it to take trades blindly. The Choppiness Index one of the best indicators
to evaluate the market, but price action, support and resistance and volume should be
your main focus. Analyze the market, determine the main trend,
have a defined action plan and after that confirm your bias with the choppiness index. The true strength in this indicator is best
displayed when used as a confirmation that a stock is starting to trend or breaking out. Now, if you enjoyed this type of content,
make sure you subscribe to our channel, turn on the notifications so you don’t miss future
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