Chop Zone

Definition

The Chop Zone is a visual indicator that was designed to analyze trends and identify their choppiness. Chop Zone is plotted within levels -100/+100 and signals to the differences between close price and its Exponential Moving Average (EMA) by converting the values calculated into colors. 

History 

The Chop Zone inherited its name from the Choppiness Index, which was created by E.W. Dreiss, an Australian commodity trader.

Takeaways

The Chop Zone indicator allows traders and analysts to determine whether or not a market is choppy, showcasing a sideways trend, or not choppy, showcasing a directional trend. 

The Choppiness Index is a range-bound oscillator and therefore, has values that fall within a certain range. As mentioned above, that range falls between -100/+100.

What to look for

The Chop Zone works in a way that the closer the calculated value is to 100, the higher the level of registered choppiness. In this case, choppiness refers to the sideways movement of a trend. In the other direction, the closer the calculated value is to -100, the stronger the market trend - directional movement of the trend. Little residual choppiness is registered in this case.

More often than not, traders and technical analysts use a threshold of sorts to indicate market trends that are becoming more and more choppy. These are often in the higher zones of market trend data. In turn, there is a threshold in the lower zone that indicates towards directional trends - not choppy.

Summary

The Chop Zone analyzes trends and indicates whether or not a trend is choppy or not. This indicator allows its users to determine the overall direction of a trend and is often associated with the Choppiness Index, a range-bound oscillator using values from -100/+100, used to analyze the range of a choppy trend.

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