Bitcoin Choppiness Index (CHOP) Helps Track Crypto Market Stability and Trends
Bitcoin Choppiness Index to Help Understand Trends Better.
The worst fears of any trader in the crypto market are the apparent lack of stability. Fortunately, the trade aspect of cryptocurrencies mirrors its fiat currency counterpart. Thus, mathematical and statistical tools can be utilized to assist in smart forecasting.
For the uninitiated, A Choppiness Index (CHOP) is an indicator designed to make knowledgeable predictions. It is used to know if the market is choppy (trading sideways) or not choppy (trading within a trend in either direction). This, as one can see, will be ideal to help determine if the Bitcoin market has stabilized at a bottom. Similarly, it can also be used to spot a Bitcoin rally or downtrend.
Like with any index, CHOP ranges from 0 to 100. Zero is the mark of extreme directional movement(positive or negative) while 100 represents the other extreme, a steady price with no long-term movement expected in either direction. Thus, the higher the CHOP value, the higher the possibility of a stable market price.
As a general rule of thumb, if the CHOP index is more than 62 then the market is considered strongly sideways, that is, it is more or less stable. If on the other hand, it reads below 38, it indicates a general market trend in either direction.
It is to be noted that at the start of the week, the CHOP for Bitcoin’s price relative to the US dollar, exceeded the choppy threshold( more than 62). This strongly suggests a stable Bitcoin market. The last time Bitcoin’s CHOP showed such results, about a fortnight ago, Bitcoin saw an upturn of nearly USD 600.
Another encouraging sign is that for the past couple of months, Bitcoin’s CHOP values has been around 60. IF one was to use this with other market indicators such as Bitcoin’s support level it can well be speculated that Bitcoin has hit its bottom and will eventually move upwards from this level. IT is not outside the realms of possibility that any sharp dips in CHOP, below 60, would indicate the market is becoming directional again, and that direction will be upwards.
While trading is still as much an art as it is a science, statistical tools such as this when used properly help mitigate the risk. This is especially true in the current climate of the recent resurgence in the markets trust in Bitcoin and other cryptocurrencies.