[SGM Volatility Lvl]

5 Jul

Choppiness Index (CI)

The Choppiness Index is a technical analysis tool used to determine whether a market is trending or consolidating. CI values range between 0 and 100:

- Higher values (close to 100) indicate a choppy market (i.e., the market is consolidating and not trending strongly).

- Lower values (close to 0) signify a trending market (either up or down).

In this script:

- CI values above 62 are considered to represent high volatility.

- CI values below 28 are viewed as representing lower volatility or consolidation.

How the Indicator Works

Choppiness Index Calculation

The CI is calculated using the average true range (ATR) and the high-low range over the specified length:

Pine Script®

Volatility Determination

The script determines the market's volatility state based on CI:

Pine Script®

- ischarge = 2 indicates high volatility.

- ischarge = 0 indicates consolidation.

Line Setup

Lines are set on the chart based on the market's volatility:

- If CI increases and indicates high volatility, a line (colored with `volcolor`) is drawn at the close price of the bar.

- If CI decreases and indicates consolidation, a line (colored with `conColor`) is drawn at the close price of the bar.

Line Extension

The lines are automatically extended to the next indicator update or bar:

Pine Script®

Relevance

Identifying Key Levels

The indicator helps traders identify key levels as follows:

- High Volatility: Lines indicating high volatility suggest strong trending movements. These levels can signify breakout points or areas where the price has made significant moves.

- Consolidation: Lines indicating consolidation suggest the market is ranging. These levels can be used to identify sideways movements, areas of accumulation or distribution, and potential breakout zones.

Potential Future Points of Interest

- High Volatility Lines: Can serve as resistance or support levels if the market revisits these areas.

- Consolidation Lines: Highlight potential zones for price breakouts or reversals when the market transitions from consolidation to a trending phase.

In summary, this indicator can be particularly useful for traders looking to identify periods of high volatility and consolidation. By marking such periods on the chart, traders can better understand market behavior and spot potential trading opportunities.