Better Choppiness Index Indicator
Better Choppiness Index works on forex, stocks and cryptocurrencies and other markets. Suitable for trading in the direction of the trend and inside the range.
Description
The Better Choppiness Index was developed by E.W. Dreiss, an Australian commodities’ trader. The calculation formula is based on the classic ATR indicator.
The Better Choppiness Index automatically determines in which of 2 states the market is:
- trendy market;
- choppy market or flat (no trend).
Add the indicator to the chart in the MT4 terminal, it will appear in the zone under the price bars in the form of three lines.
The central thickened line is the Choppiness index. The two red lines are the Bollinger Bands, they are needed to interpret the indicator readings. All lines do not repaint.
How is Choppiness Measured?
The values of the Better Choppiness Index vary from 0 to 100.
The closer the values are to 0 – the more strong the trend is.
The closer the values are to 100 – the more the market is flat.
Technical analysts believe that if the Better Choppiness Index values are above 61.8 level – the market is flat. If it is below 38.2 – the market is trending.
Another way to determine the market condition is to use the Bollinger Bands. If the values of this indicator are above the upper line – the market is flat. If below the bottom line – the market is in a trend.
Note, the indicator does not determine the direction of the trend – whether it is bullish or bearish.
A super useful function of the indicator is sending automatic alerts. It will save a lot of time. When the indicator breaks into a trend or flat zone, you will know it right away.
How to trade using the Better Choppiness Index indicator?
The indicator does not generate buy and sell signals in the form of arrows or in any other way.
The Better Choppiness Index cannot be used as a self-sufficient tool, but this does not mean that this indicator is useless.
For example, the indicator can be your best assistant to choose your intraday trading strategy in the forex market.
Let’s assume that, on the 30-minute timeframe you have determined that the values of the Better Choppiness Index are mostly above the upper Bollinger Band (this period is highlighted in yellow). So, the market is flat. And then you switch to a 5-minute timeframe and trade intraday on the reversal signals of one of the oscillators.
Then, on the 30-minute timeframe, the Better Choppiness Index values go under the 38.2 line. It means that the market is trending. Then you choose a buying strategy after the completion of the pullback on the 5-minute timeframe.
Thus, the Better Choppiness Index helps to trade in harmony with the current state of the market and increases the chances of making profit.
Conclusion
The Better Choppiness Index Indicator for Metatrader 4 allows you to separate the trend market from the flat market in fully automatic mode.
Advantages of the indicator:
- Non-repaint.
- It provides alerts.
- It works on all timeframes. So, it can be used by investors on daily and weekly price charts, as well as by intraday traders.
Unfortunately, the indicator for MT4 does not generate buy and sell signals. You will need to develop a strategy to use the Better Choppiness Index in combination with price patterns and/or other indicators which give a signal to enter a position.
Check out on a demo account how this indicator can be useful for your forex trading style. Don’t forget to place stop-losses!
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