Coppock Curve is a trading indicator developed by economist Edwin Sedge Coppock in 1962. It is originally a momentum indicator used to identify long-term buying opportunities in the S&P 500 and Dow Industrials, although lately it is being used on other stock market indexes. It is originally made for monthly charts, but now it can also be used on any chart available, be it a minute chart, hourly, daily, or weekly charts, depending on the trader’s preferences. The inventor used monthly data to find buying opportunities but did not use the indicator much for sell signals.
Although can be altered, this is how a default Coppock Curve is calculated:
CC = 10-period weighted moving average of the 14-period RoC + 11-period RoC
RoC stands for Rate-of-Change which is the momentum oscillator and oscillates above and below the zero line. It is calculated as RoC = [(Close – Close n periods ago) / (Close n periods ago)]*100 where “n” is the number of periods used in the calculation, in this case, 11 and 14.
Coppock Curve Uses
CC values go over or below a zero line, where an investor can buy when the CC moves above the zero and sell when the CC moves below zero. It is closely similar to the MACD indicator.
Above is a monthly chart of Dow Jones Industrial from 2013 to present. The green arrows indicate a buying position and the red arrows indicate a sell position. In a monthly chart, there are few signals generated, whereas in an hourly, or other shorter charts, the signals are abundant. However, a CC indicator in its default settings might not be a very good guide for a short-term trader.
What You Can Do To Use CC For Short-Term Trading
Above is the same Dow Jones chart, only set to hourly. It is evident that more signs are generated, but the entries and exits happen a bit too late in the move to extract much of a profit from the price waves and would result in losses on a number of trades.
To use CC for short-term trading, you must adjust its default settings. Decreasing the RoC variable will increase the speed of fluctuations in the CC and increase the number of trade signals, while increasing the RoC will slow the fluctuations and produce fewer signals.
If you want to receive entry and exit signals early, decrease the WMA. On the other hand, if you want to receive late entry and exit signals, increase the WMA. If the settings are changed this way, it would be evident that the signals shifted slightly to the left. Such adjustments can have a large impact on profitability or losses.
FSM News provides the broadest coverage of the latest news on forex, commodities, individual stocks, stock indices, technology, as well as the world economy. What are you waiting for? Stay informed and be a smart trader! Subscribe to FSMNews now and receive the daily newsletter!