The Market Chop Index™ (MCI™) is a breakthrough technical indicator that is able to accurately diagnose whether price is trending or consolidating (commonly referred to as "chop"). In addition to overcoming the all-too-common problem of 'staying out of chop', the MCI™ also calculates trend strength, generates extremely accurate exit signals for long and short positions and predicts drastic increases in volatility and large price moves.
The algorithm that powers the Market Chop Index™ utilizes elements of “Chaos Theory” to accurately determine whether price is trending or consolidating. By analyzing and revealing the true nature of price action, the Market Chop Index™ is able to generate extremely accurate exit signals for long and short positions and can also predict large price moves before they actually occur.
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The Market Chop Index™ (MCI™) helps traders to determine whether price is moving in a random or ‘predictable’ fashion. By assessing the verticality of price movements, the Market Chop Index™ is able to decipher whether the market is trending, ranging, or moving randomly. The MCI™ value is virtually always within the range of 1.0 to -1.0. The more verticality that price has, the closer the MCI™ moves to 1.0. The less verticality that price has, the closer the MCI™ moves to -1.0. The farther that the MCI™ value deviates from zero, the higher the degree of predictability in regards to short-term future price movements.
The MCI™ also generates “Trend Exhaustion” and “Linear Market” signals, which occur when the MCI™ is above or below the Upper or Lower Extremes. Trend Exhaustion signals are generated when the MCI™ is above the “Upper Extreme” at 1.0. These signals are ideal when used as exit or profit-taking signals, since they often register just before the trend loses its steam and price reverses its direction. They can help you lock in your gains when and alert you when there is a very low chance of additional profit potential. Linear Market Signals are generated when the MCI is below the Lower Extreme at -1.0. These signals are ideal for traders who wish to avoid the pitfalls of entering or exiting trades while price is stuck in sideways chop, as well as for pattern or “breakout” traders who like to locate trendless, ranging markets that will eventually break out of the upper resistance or lower support of the price channel.
When the market is trending, we can expect the trend to exhaust itself soon after the MCI™ reaches the 1.0 “Trend Exhaustion” level. However, the MCI™ does not tell us if price will reverse sharply, or if price will instead begin to range. It only tells us that price has been moving with an extraordinary amount of verticality and is likely to revert back to a ‘flatter’ profile in the near-term future.
Markets with MCI™ values close to 1.0 are ideal for traders who look for strong trends and increased volatility, regardless of whether you are trading alongside the trend or trying to catch a price reversal.
There are 5 variations of Trend Exhaustion signals that are based on two different formulas. The “Fast Calculation” versions generate signals more frequently and have less lag, whereas the “Slow Calculation” signals plot a few bars later and are slightly more accurate. The “Confluent Exit” signal is generated when both the Slow & Fast simultaneously generate a signal on the exact same bar. As a result, these signals are the most accurate and reliable, though they occur less frequently.
When the market is ranging and moving sideways with extreme linearity, we can expect a significant and rapid increase in both the verticality and volatility of price to occur soon after the MCI™ reaches the -1.0 “Linear Market” level. In this scenario, the MCI™ only tells us that a breakout is extremely likely to occur … it does not tell us the direction of the breakout. Instead, it tells us that price has been moving with an extraordinary lack of verticality and is likely to revert back to a more ‘jagged’ profile in the near-term future.
Markets with MCI™ values close to -1.0 are ideal for pattern or “breakout” traders who like to locate trendless, ranging markets that will eventually break out of the upper resistance or lower support of the price channel.
The Market Chop Index™ Dots (MCI™ Dots) simplifies chart analysis by plotting dot signals above and below price whenever the MCI™ generates “Trend Exhaustion” or “Linear Market” signals. It is ideal for traders who are only interested in being notified of the various MCI™ signals.
The Market Chop Index™ PaintBar (MCI™ PaintBar) simplifies chart analysis by color-coding price bars whenever the MCI™ generates “Trend Exhaustion” or “Linear Market” signals. It is ideal for traders who are only interested in being notified of the various MCI™ signals.
The MCI™ is truly a revolutionary indicator that represents a breakthrough in the field of technical analysis. It has the ability to see through the “white noise” of price data and can accurately determine whether price is trending, ranging, or moving in a random fashion.
Other indicators that attempt to measure whether price is trending or consolidating all have fatal flaws that inhibit their effectiveness. The most popular is the ADX, which aims to calculate trend strength and momentum. However, the ADX formula cannot always determine if price is trending or consolidating because it is directionally biased. In other words, the ADX will increase if price keeps moving higher, but it will begin to decrease if price reverses its direction and rapidly moves lower (even though price is still technically “trending”). This a severe limitation of the ADX because it is unable to determine if price is truly trending or ranging … it only measures the trend strength of one direction as opposed to both. The result is an often deceptive and potentially dangerous indicator that only works well on some occasions.
The MCI™ is superior to the ADX because it is always able to determine whether price is trending, consolidating, or moving in a random fashion. This is due to the fact that the MCI™ is calculated based on the verticality of price movements, whereas the ADX is calculated based on a high/low trading range. Therefore, the MCI™ value will not necessarily decrease if price keeps moving higher and then reverses its direction and rapidly moves lower … in fact, the MCI™ value may even increase if price begins to move lower with more verticality. This is a much more effective way to determine whether price is trending (increased verticality/volatility) or consolidating (lack of verticality/volatility), since the MCI™ is only concerned with the verticality of price movements and is not directionally biased.
The following screenshots illustrate the profound difference between the ADX and the MCI™. Both are using identical length settings, but note how the MCI™ is able to continuously diagnose price action while the ADX repeatedly “resets” itself (decreases despite the fact that price is still trending).
The Market Verticality Index™ (MVI™) is a proprietary technical indicator that we at Fibozachi have devised, designed and developed. It is one of our most recognized contributions to the field of technical analysis, since the concept of “price verticality” has rarely been touched upon by technicians in the past.
The formula behind the Market Verticality Index™ measures the strength of vertical price movements, otherwise known as the “verticality” of price. This is accomplished by measuring the total difference between the highs and lows of the current bar and previous bar. It is important to note that when we measure the verticality of price, we are only concerned with whether or not price exceeded the previous bar’s high and/or low.
While the Market Verticality Index™ measures the amount of “total verticality”, the MVI™ Up-Down calculates and separately plots both “Up Verticality” and “Down Verticality”. Therefore, the MVI™ Up-Down is actually a trend-based indicator that is designed to show traders whether the verticality of the last “N” bars is biased to the upside (bullish) or downside (bearish). This is quite different than the Market Verticality Index™, which is only concerned with the total amount of verticality and is therefore more of a volatility-based indicator.
The MVI™ Up-Down is intended to be used as a trend-filter in a similar fashion to the popular DMI (Directional Movement Index). Long positions should only be considered when the MVI™ Up is dominant, whereas short positions should only be considered when the MVI™ Down is dominant.
The MVI™ Differential calculates and plots the difference between “Up Verticality” and “Down Verticality”. Therefore, the MVI™ Differential is also a trend-based indicator that is designed to show traders whether the verticality of the last “N” bars is biased to the upside or downside.
The MVI™ Differential is intended to be used as a trend-filter since it measures the difference between “Up Verticality” and “Down Verticality” to provide a unique and effective diagnosis of the underlying trend (more specifically, the directional bias of price action). It is essentially a simpler version of the MVI™ Up-Down in that it is plotted as one line with a customizable average, whereas the MVI™ Up-Down provides a more detailed profile of verticality.
Both the Market Chop Index™ and Market Verticality Index™ include special pre-formatted “Market Analyzer” Indicators and templates for all NinjaTrader users. All of the columns, colors and text are completely customizable so that you can personalize it to your own preferences. As you can see from the screenshot below, using the MCI™ and MVI™ with the Market Analyzer allows you to quickly scan an entire list of symbols for the most important information in just seconds! You can also sort the data by any column to organize your scan results into easy-to-read lists.
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