The original Analysis Toolbox articles discussed the various market cycles including trends and continuations. This part of the The Trader’s Indicator Series focuses on the Indicator Toolbox, as we will discuss various indicators that are found on most trading platforms. We will discuss the indicator in the context of the chosen market, and if it resonates with you, please continue to do your own analysis with it. Trading successfully is all about feeling comfortable with a methodology and using that system repeatedly even when boredom sets in. I will be discussing indicators in alphabetical order that can be found on the MotiveWave platform. (for a free 2-week trial CLICK HERE)
In the last series, called The Trader’s Pendulum, we took you through the 10 Habits, all aimed to support a successful trader. Your mission in developing these habits is to get out of the Technical Trader’s Trap and transform into an Entrepreneurial Trader so that you can start being accountable to your trading. We invited you to take action and begin your journey by completing the Trader’s Scorecard (www.fxtradersedge.com/scorecard) and to get down to business by arranging a free coaching session. In this Indicator Series, we talk about the mechanics of trading.
Coppock Curve was created by E.S.C. Coppock. For monthly time intervals use period lengths 14, 11, 10 for daily use 294, 231, 210.
The Coppock Curve is a momentum indicator which attempts to capture trending markets. Even though Edwin Coppock introduced the indicator in Barron’s in October 1965 for stocks, it can be applied to any market, from forex to stocks to commodities. Many indicators which determine trend are called directional indicators, meaning they show whether the market is in an uptrend or a downtrend. This indicator was originally designed to identify long-term buying opportunities in the S&P500 and Dow Industrials specifically on the monthly chart. In the S&P monthly chart below, the buying opportunity is triggered when the indicator moves from negative to positive territory above the zero line. One would exit a long position when the indicator moves from positive to negative territory below the zero line. These sell signals could be used to exit the stock market and move into cash, in order to reduce market exposure during bear markets.
While it was not used for sell signals, traders today have adapted this indicator for other markets besides the stock indexes and have used it for sell signals as well.
The calculation is as follows:
Coppock Curve = 10-period WMA of 14-period RoC + 11-period RoC
Where WMA = Weighted moving average and RoC = Rate-of-Change
In the monthly S&P chart below, the Coppock Curve signaled long in January 2010 and stayed long until it briefly went below the zero line in February 2016 until June 2016. In a strong monthly uptrend, this indicator removes the noise that would be evident on a daily time frame. See the daily chart below where there are multiple signals as the indicator moves above and below the zero line.
This indicator is useful to stay in the trend for a long-term position taker and is flexible for a trader following the daily charts as well.
USING THE TOOL
Moving to other markets, the EUR/USD Daily chart below provides buy and sell signals in a rather choppy market.
If bullish during the choppy uptrend, one could theoretically just take buy signals when the indicator crosses the zero line. This would guard against getting chopped up by playing both sides. For sideways markets, the trader might use the indicator to buy at market reversal points at an indicator bottom and sell at indicator tops. While this strategy is fine during a choppy sideways market, it wouldn’t work in a strongly trending market, whether up or down.
The indicator also works on different time frames. In the 15-minute EUR/USD chart below, the indicator provided a sell signal, followed by a buy signal, followed by a potential sell signal. The settings can also be adjusted, to make it more sensitive to market moves for day trading. Having more signals however, creates more noise so it is up to the trader’s personal preferences.
In the 1-hour S&P chart below, the Coppock indicator provided a long, short and long trading signal, as noted with the cross of the zero line. These signals are clean, and can be used with candlestick analysis, divergence and any other indicator of choice.
We recommend using a top down approach to trading with the trend as we know that without that higher time frame perspective, it is very easy to get caught up with countertrend moves, and miss the real trend. The challenge is to identify whether the trend will continue or not so combining this indicator with Elliott Wave analysis may be quite useful. Additionally, using trendlines and chart patterns will help to confirm the overall view of the market being traded.
Learn how the Coppock Curve helps keep traders in the trend longer, also alerting traders when the market is sideways. Start incorporating the Coppock Curve into your chart set-up. Finally, use the Coppock Curve in developing trading strategies.
See you next week for another “C” indicator!
If your mission is to become a trader or investor who stays out of the Technical Trader’s Trap, then take the leap to grow into an entrepreneurial trader.
I created the FX Trader’s EDGE Coaching Program modelled after the “10 Habits of Successful Traders”, which is the title of my newly published book by Wiley.
The Trader’s Pendulum: The 10 Habits of Highly Successful Traders. Copyright (c) 2015 by Jody Samuels. This book and ebook is available at all bookstores, online booksellers, and from the Wiley web site at www.wiley.com.