Choppiness Index
The Choppiness Index (CHOP) is an indicator developed by E.W. Dreiss that measures the degree of trendiness versus choppiness in a market on a scale of 0 to 100, where high values (above 61.8) indicate a sideways, non-trending market and low values (below 38.2) indicate a strongly trending market.
E.W. Dreiss introduced the Choppiness Index in the early 1990s. Unlike most technical indicators that attempt to indicate price direction, CHOP deliberately does not forecast whether price will go up or down. Its sole purpose is to quantify whether a market is trending (moving directionally) or chopping (oscillating sideways), allowing traders to select appropriate trading strategies for the prevailing market mode.
The calculation sums the True Range values over a lookback period (commonly 14 bars), divides by the difference between the highest high and lowest low over the same period, takes the logarithm, and normalises to a 0-to-100 scale. A perfectly trending market where price moved in one direction every single bar would produce a CHOP value approaching 0; a perfectly sideways market oscillating between two fixed extremes would produce a value approaching 100. The Fibonacci levels of 61.8 and 38.2 are used as the upper and lower thresholds respectively, borrowing from the broader technical analysis convention of using these ratios as significant levels.
When CHOP rises above 61.8, the market is considered to be in a consolidation or range-bound mode — historically, trend-following systems (moving average crossovers, breakout strategies) have underperformed during such periods. Conversely, when CHOP falls below 38.2, the market is in a strongly trending state — momentum and trend-following strategies have historically performed better, while mean-reversion strategies face higher risk of running against the trend.
The Choppiness Index is valuable as a filter or regime detector rather than a standalone signal. A common application is to combine it with a trend-following indicator: if CHOP is below 38.2 and the EMA is rising, the trend signal is treated as higher confidence; if CHOP is above 61.8 and the EMA is rising, the trend signal is treated with scepticism.
In Indian markets, CHOP has been applied to Nifty 50 and Bank Nifty daily charts as a regime classifier. Indian index futures historically alternate between periods of strong directionality (budget session moves, FII flow-driven rallies, post-election trends) and prolonged consolidations. Using CHOP to identify these regimes has been explored by quantitative traders in India as part of adaptive strategy selection frameworks. The indicator is available natively on TradingView and can be programmed in Amibroker AFL.