Choppy Market Index for Switching Between Range and Trend Rules

Summary

The Choppy Market Index (CMI) estimates directional movement by dividing the absolute change between the latest close and the close n bars earlier by the high-to-low range across that lookback, then scaling the ratio by 100. A low reading suggests that price has moved little relative to its range, while a high reading indicates more directional behavior.

The document gives separate rule sets for ranging and trending conditions. In the range regime, a smoothed 60-bar CMI below 40 is paired with the sign of the 20-bar price change to take a contrarian position, with exits when CMI rises above 50. In the trend regime, a smoothed CMI above 60 is paired with the same price-change sign for a directional entry, with exits when CMI falls below 50. These are stated recommendations, not validated results: no instrument, test period, transaction costs, or risk controls are reported, and the thresholds and lookbacks may require testing for a specific market.

Key ideas

• CMI compares an absolute close-to-close change with the high-low range over a lookback window.
• Low CMI readings are used to identify choppy conditions, while high readings indicate directional behavior.
• The proposed range rules enter against the sign of the 20-bar price change when smoothed CMI is below 40.
• The proposed trend rules follow the price-change direction when smoothed CMI is above 60.
• The rules use CMI crossing 50 as an exit condition, but the document provides no performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.