What is a good Chop Filter??

[123r34]

I am asking for opinions on what would be a good indicator to filter out chop. I would use it as a part of an automated strategy to not take trades during periods of chop.

Thanks

[mrlogik]

Well, just some thoughts.

1. n number of bars high to low range
2. moving averages tangled up
3. inconsistent high / low step (higher highs, higher lows / lower highs, lower lows) = trend, otherwise more indirection
4. time of the day (are markets closed)


Just some random imanengineer thoughts :-)

[MicroAl]

Chop Filter

One way is to use the ADX indicator. For example on a 2 min chart of dow futures, some traders plot the ADX and if it is below 20, pass on the trade.

Hope it helps

[sefstrat]

look for Damiani Volatmeter, there is a version of it posted here, it measures what is somewhat like signal to noise ratio and alerts you when the noise is too high.

Another effective technique is to use multiple timeframes, larger timeframes make ranging and consolidation periods much more obvious.

[Elliott Wave]

look for Damiani Volatmeter, there is a version of it posted here, it measures what is somewhat like signal to noise ratio and alerts you when the noise is too high.

Another effective technique is to use multiple timeframes, larger timeframes make ranging and consolidation periods much more obvious.

I agree. Volatmeter is similar to ADX but is a bit more reactive and adapts better to the market.

Another thing to try is the slope of a moving average. If the slope is between -10 and +10 for example, this indicates the market isn't very 'trendy'.

The problem with many of these approaches is that they are lagging and can sometimes filter as many good trades as bad ones.

A more 'predictive' approach could be looking at fibonacci levels on different time frames to see if the market is ranging between levels or is trending.

Overall I think the best technique would likely be one that combines lagging indicators, multiple time-frame confirmation and forecasting using fibonacci/support&resistance.