The Coppock Curve was developed in October 1962 by economist Edwin Coppock. This indicator is calculated using a 10-month weighted moving average that is the sum of an 11-month rate of change for the index and a 14-month rate of change. Therefore, it’s evident that it was designed to use a monthly time-scale. This monthly data helps traders determine the best time to buy, usually when the indicator moves from a negative to a positive zone.
Traders usually use the Coppock Curve for long-term trades that involve ETFs, indexes, and other liquid instruments. As they do this, they’re able to identify trend direction, pinpoint significant market trends and develop trading strategies or a guide for long-term investing. (Click this link to access an economic calendar for your trading strategies)
What Can You Tell From The Coppock Curve Indicator?
The Coppock Curve’s primary use is as a long-term buy and sell indicator and is often used on the candlestick chart with each candle detailing the price information for a month. This oscillating trendline usually ranges lower and higher than zero. When the Coppock Curve moves over zero, this is a signal to buy, while dropping below zero is a sell signal. Once it passes beyond these signals, this indicator’s movement won’t be correlated to the price because of its long-term lagging nature.
Coppock Curve Indicator | Indicator Series Click To TweetWhat Are The Limitations Of Using The Coppock Curve Indicator?
There are several downsides of using the Coppock Curve you need to know about before going ahead and using it. These include;
- This indicator lags in identifying major market tops and bottoms because it only focuses on 10, 11, and 14-month averages.
- There’s a likelihood of a false signal when using the Coppock Curve, which happens when this curve quickly moves under or over the zero lines. As a result, traders might end up buying or selling, only for the indicator to signal vice versa once the trade has already been placed, leading to significant losses.
- When using the Coppock Curve indicator, traders are prone to cognitive bias. This is usually the case because the indicator’s default settings are relatively arbitrary. Thus, many traders opt to change the settings to adjust the curve’s shape to ensure it fits better with historical price data. However, this doesn’t give the best historical signals, affecting the accuracy and reliability of future signals.
Takeaway
The Coppock Curve is a great momentum indicator that helps traders identify changes in the market’s long-term trends. For best effectiveness, it should be used on the monthly chart. But for best accuracy, traders are advised to change the settings depending on the timeframes and the markets before employing their strategy.
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