The Coppock Curve is a popular technical analysis tool that we may utilize to forecast the market. It was created by Edwin Coppock in 1962 and has been studied extensively since then.
This blog post will look at how the Coppock curve is calculated and what it implies for investors. A Coppock curve is an effective momentum indicator for traders. We can use it only in the weekly and monthly charts.
Still, it’s handy because you have better information about what might happen at different times during your investment horizon than just using traditional trends with shorter periods. This technique was designed to locate the initial trend and reversal points.
What is the Coppock Curve Indicator?
The Coppock Curve is a momentum indicator. The objective of the Coppock Curve is to spot long-term buying possibilities in the United States stock market. This is an essential technical indicator for detecting buying opportunities in the S&P 500 and Dow Jones Index, both major indices.
When the indicator moved from negative territory to positive territory, Coppock looked for buying possibilities monthly. Many technical analysts consider a cross from positive to negative territory as a sell signal, even though Coppock did not utilize it for sell signals.
The Coppock Curve was not designed to identify bottoms. The Coppock curve was created to spot rising stocks. Therefore it only produces buy signals by default.
How to calculate the Coppock Curve
The Coppock Curve indicator looks for entry signals by analyzing market activity monthly. The Coppock Curve calculations are smoothed using a weighted moving average of another period after the rates of change of short and long-term months were added. The following is the formula for the Coppock Curve:
10-period WMA of (14-period of RoC + 11-period of RoC)
In the Coppock Curve, the short and long ROC periods are set at 11 and 14, the Weighted Moving Average is set at 10.
The weighted moving average takes the sum of the 11-month and 14-month rate of change’s previous ten calculations. A weighted moving average has the purpose of giving greater weight to more recent data over older data. The weights on prior data decrease stepwise or arithmetically, in this case. This is in contrast to exponential moving averages.
What is ROC, and how does it work? The Rate of Change (ROC) indicates the percentage change in price from one period to the next. When the rate-of-change is positive (beyond the zero line), prices are generally increasing.
How to use the Coppock Curve
In higher timeframes, such as daily or weekly, the Coppock Curve indicator is more effective.
For the study of numerous markets, we like to utilize the Coppock. It may be used to analyze all Standard & Poor’s sectors.
The Coppock Curve’s zero line serves as a trade trigger; purchase when the line rises above zero, and sell when it falls below. When the Coppock reaches back up to its original position, investors can sell out their long positions and re-initiate long positions.
If you’re a long-term trader, this indicator can be used to review your Exchange Traded Funds (ETFs) or Equities (Stocks) portfolio and change your market exposure.
On the other hand, if you are an active trader, you may utilize the Coppock Curve to filter signals and place a position in the same direction as the current trend.
You may use a daily chart to identify the trend if trading on an hourly time frame. If the Coppock Curve is above zero on the daily chart, you must only take long trades in the hourly chart.
This indicator does not generate many signals based on monthly data. A cross into positive territory signals a buy, whereas a cross into negative territory signifies a sell.
You may use the Coppock Curve in a variety of timeframes, as well as various settings to make the indicator more or less reactive. The Rate-of-Change setting can be shortened or lengthened to make the Coppock Curve more responsive and quicker, or less sensitive and slower.
BitCoin trading example with Coppock
We provide you with a real-world example on a weekly bitcoin chart. Coppock correctly predicted the cryptocurrency’s decline and rebound, then leveled off just as prices did. As we previously said, this indicator may not be used to obtain entry signals but rather as a trend detector or to anticipate the conclusion of a trend.
Our tips on the Coppock Curve indicator
As you already know, this is a lagging indicator, so please do not use it to generate entry or exit signals.
A little tip: we could use a Moving Average of the Coppock Curve to try to anticipate the signal. As you can see, with moving average crosses, the signal becomes faster.
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The Coppock Indicator for TradeStation and MultiCharts
This is the code of the Coppock Curve for TradeStation and MultiCharts with Moving Average filter:
Inputs: Price(Close), Length_Roc_Fast(11), Length_Roc_Slow(14), Color_UP(green), Color_DN(red); Vars: Coppock_Curve(0), Coppock_Curve_MA(0); Coppock_Curve = waverage((rateofchange(price,Length_Roc_Slow) + rateofchange(price,Length_Roc_Fast)),10); Coppock_Curve_MA = average(Coppock_Curve, 20); If Coppock_Curve > Coppock_Curve_MA then begin plot1(Coppock_Curve, "Coppock Curve",Color_UP); end else begin plot1(Coppock_Curve, "Coppock Curve",Color_DN); end; plot2(0,"Zero-Line"); plot3(Coppock_Curve_MA, "Coppock MA", White)
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