Coppock Curve

What Is the Coppock Curve?

The Coppock Curve is a long-term price momentum indicator utilized essentially to perceive major slumps and upswings in a stock market index. It is calculated as a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change for the index. It is otherwise called the "Coppock Guide."

The Coppock formula was presented in Barron's in 1962 by Edwin Coppock.

Step by step instructions to Calculate the Coppock Curve

The Coppock Curve can be calculated as follows:

Coppock Curve = WMA₁₀ of (ROC₁₄ + ROC₁₁)

Where:

• WMA10 = 10-period weighted moving average
• ROC14 = 14-period rate of change
• ROC11 = 11-period rate of change

Considering this formula, proceed through the accompanying advances:

1. Ascertain ROC₁₄ utilizing the latest month to month closing price relative to 14 periods (months) prior.
2. Ascertain ROC₁₁ utilizing the latest month to month closing price relative to 11 periods (months) prior.
3. Add ROC₁₄ to ROC₁₁. Keep on doing this every period going ahead.
4. When there are no less than 10-periods of ROC₁₄ added to ROC₁₁, take a weighted moving average of the last 10 values. Keep on doing this every period proceeding.

What Does the Coppock Curve Tell You?

The Coppock Curve was initially carried out as a long-term buy and sell indicator for major indices, for example, the S&P 500 and the Wilshire 5000. Frequently, it is utilized with long-term time series, for example, a candlestick chart, however where each candle contains a month's worth of price data. At the point when the indicator is over zero it demonstrates a hold. At the point when the indicator drops below zero it demonstrates a sell, and when the indicator moves over zero it signals a buy.

Past the signals over, the curve will frequently seem uncorrelated to price. This is due to the long-term lagging nature of the indicator.

Illustration of How to Use the Coppock Curve

Apply the Coppock Curve to a month to month price chart of a stock index or stock index exchange traded fund (ETF). The overall strategy is to buy when the Curve transcends the zero line and consider selling when the Curve falls below zero. For investors who currently own the ETF, when the Coppock curve is over zero the indicator is signaling to hold onto the investment.

The SPR S&P 500 ETF (SPY) shows all the buy and sell signals the Coppock Curve has generated since mid-1995.

The indicator kept investors out of a portion of the 2001 and 2008 stock market declines. In any case, in 2016, the indicator gave a sell signal close to the market base and afterward gave a buy signal a short time after at a higher price.

The Difference Between the Coppock Curve and Rate of Relative Strength Index (RSI)

The relative strength index takes a gander at how the current price compares to prior prices, however it is calculated uniquely in contrast to the rate of change (ROC) indicator utilized in the Coppock Curve calculation. Thusly, these indicators will give different trade signals and data.

Limitations of the Coppock Curve

The major drawback of the Coppock Curve is the event of a false signal. False signals happen when the curve rapidly moves above and below the zero line. This might make traders make purchases, however at that point the indicator says to sell them once more, or vice versa.

Another drawback is curve fitting, a cognitive bias. The Coppock Curve is to some degree erratic in its default settings, and numerous traders change those settings to change the state of the curve to better fit historical price data. Fitting the indicator to give the best historical signals may not create better future signals.

The indicator is likewise taking a gander at 10-, 11-, and 14-month averages. The indicator will lag in flagging major market bottoms and tops.

Features

• The indicator is intended for use on a month to month candlestick chart, where each candle is one month.
• A perusing over zero on the indicator signals a buy, while a drop below zero is a sell signal.
• The Coppock Curve is a technical indicator that gives long-term buy and sell signals for major stock indexes and related ETFs in light of movements in momentum.