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Choppiness Index

OVERVIEW

The Choppiness Index (CHOP) is a volatility indicator that measures whether a market is trending or consolidating by calculating the ratio of true range to directional movement. Developed by Bill Dreiss, CHOP is a directionless oscillator ranging from 0 to 100.

Note

The Choppiness Index does not indicate the direction of a trend. It only identifies the current market regime — trending or choppy.

CHOP Reading Market Regime Recommended Strategy
Above 61.8 Choppy / Consolidating Mean-reversion, oscillators, short strangles
38.2 – 61.8 Neutral / Transitioning Reduce position sizing, await confirmation
Below 38.2 Strongly Trending Breakout, momentum, trend-following systems

HOW TO USE

As a Regime Filter

Use CHOP to toggle algorithmic strategies on and off based on the current market state.

  • When CHOP is above 61.8, suppress breakout signals and deploy mean-reversion frameworks such as RSI or Bollinger Bands.
  • When CHOP breaks below 38.2, activate breakout strategies and pyramid into directional positions.
  • When CHOP hovers near 20 for a prolonged period, anticipate a mean-reversion snapback as the trend becomes exhausted.

Calculation Inputs

The standard lookback period is 14 bars. CHOP requires the following components:

Component Definition
True Range (TR) Greatest of: (High − Low), (High − Prev Close), (Low − Prev Close)
Directional Movement (DM) Absolute value of (Current Close − Close N periods ago)
ATR Sum Sum of TR over 14 periods

Formula

CHOP = 100 × LOG10( ATR Sum / (DM × 100) ) / LOG10(N)

Where N is the lookback period (default: 14). Logarithmic scaling normalizes the output so extreme directional moves compress the reading toward zero.

Tip

On Tapeboard, apply CHOP as an overlay filter on any strategy panel. Set threshold alerts at 38.2 and 61.8 to receive regime-change notifications in real time.

FEATURES

Feature Detail
Default Period 14 bars
Output Range 0 – 100
Directionality None — regime detection only
Indicator Type Volatility / Regime filter
Common Pairings RSI, ADX, Bollinger Bands, ATR
Signal Lag Lagging — may delay breakout confirmation

WORKED EXAMPLE

Using SPY on a daily chart over a 14-day window:

Variable Value
ATR Sum (Sum of True Ranges) $14.00
Directional Movement (DM) $2.00
Lookback Period (N) 14 
CHOP = 100 × LOG10( 14.00 / (2.00 × 100) ) / LOG10(14)
CHOP = 100 × LOG10(0.07) / 1.146
CHOP ≈ 65

A reading of 65 confirms a highly consolidated market. A trend-following trader would suppress breakout signals and wait for CHOP to fall below 38.2 before re-engaging. A mean-reversion trader would deploy a short strangle to capture premium during the ongoing chop.

LIMITATIONS

Note

CHOP is a lagging indicator. It may remain elevated well after a genuine breakout has started, causing late entries if used as the sole confirmation signal.

  • No directional bias — a high CHOP reading is not a bearish signal. It indicates a range, not a downtrend.
  • Breakout direction unknown — a low CHOP confirms a trend exists but does not specify whether the move is bullish or bearish.
  • Lag on breakouts — combine CHOP with ADX or volume-based indicators to reduce entry delay at regime transitions.