Choppy market index as described by Daniel Fernandez in August 2011 Trading Strategies magazine article “Tackling trending and ranging markets with CMI”
The Choppy Market Index:
The CMI is a simple indicator that gauges whether the market has behaved in a choppy (non-directional) manner or a trending (directional) manner. The indicator calculates the difference between the most recent bar’s close and the close n bars ago and then divides this value by the difference between the highest high and lowest low over these n bars. This value is then multiplied by 100 to give us a nor – malized value between zero and 100:
CMIÂ Â Â =Â ((ABS(C[0]-C[n]))/(H[n]-L[n]))*100
WhereÂ
ABS = absolute value
C[0]Â =Â most recent close
C[n]Â =Â close n bars ago
H[n] = highest high of past n bars
L[n] = lowest low of past n bars
Recommendations:
Range strategy rules:
1. Enter a long when the 10-bar SMA of the 60-bar CMI is below 40 and the difference between the current bar’s close and the close 20 bars ago is negative.
2. Enter a short when the 10-bar SMA of the 60-bar CMI is below 40 and the difference between the current bar’s close and the close and the close 20 bars ago is positive.
3. Exit trades when the CMI moves above 50.
Trend strategy rules
1. Enter a long when the 10-bar SMA of the 60-bar CMI is above 60 and the difference between the current bar’s close and the close 20 bars ago is positive.
2. Enter a short when the 10-bar SMA of the 60-bar CMI is above 60 and the difference between the current bar’s close and the close 20 bars ago is negative.
3. Exit trades when the CMI moves below 50.
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