Coppock Curve Indicator: Trade it like a pro

Momentum indicators

Coppock Curve
  • The Coppock Curve indicatoris a momentum indicator.
  • It helps to identify long-term trading opportunities in the stock market.
  • The Zero-Line functions as a trade-trigger. It gives the buying signal when the Coppock Curve is above zero and selling signals when the Coppock Curve is below zero

The Coppock Curve indicator, also known as the Coppock indicator or Coppock Guide, is a momentum indicator that helps to identify long-term trading opportunities in the stock market. Its strategy revolves around spotting major bottoms in the market. The Coppock indicator is also a momentum indicator to calculate 10-month moving averages of the sum of 14-month rate of change and the rate of change of 11-months for the index. It is particularly useful for S&P 500 and Dow Jones’ trading but it is also instrumental to give entry signals in Forex after some necessary additional adjustments. 

What is the Coppock Curve?

The history of the Coppock Curve indicator is very interesting. Edwin Coppock designed the indicator. The Coppock Curve was first published in Barron’s Magazine on October 15, 1962. Edwin was an economist and a devotee of the Episcopal Church. The Church commissioned him to find opportunities for long-term investments. Edwin reportedly asked the ecclesiastical authorities how long it usually took people to recover from the death of a loved one. The bishops advised that it normally took 11 to 14 months to get over the death of a loved one. 

Based on the directions of the Church, Edwin equated the market downturns to a mourning period of 11 to 14 months. Hence, he developed a series of calculations covering 11 to 14 months period. Therefore, we can say that the Coppock Curve indicator signals when the mourning of the stock market is over after a long-term downturn. Originally, the Coppock Curve was named as “the Trendex Model”. It has already established itself as a great zero-centered momentum oscillator. Even though it has generated very few signals throughout the recent history including two successful predictions of the last two bear markets in 2000 and 2008. Furthermore, some research aims to modify the Coppock Curve to get some better performance out of it.

The Coppock Curve indicator formula and calculations 

The Coppock Curve indicator seeks to identify the entry signals by analyzing the market activity on a monthly basis. After the addition of the rates of change of short and long period of months, the Coppock Curve calculations smooths by a weighted moving average of another period. The Coppock Curve formula is the following:

Coppock Curve = {RATE OF CHANGE (SPX,14)} + {RATE OF CHANGE (SPX, 11)} 

COPPOCK 

CURVE WEIGHTED MOVING AVERAGE = WEIGHTED MOVING AVERAGE (COPPOCK CURVE, 10)

What does the Coppock Curve indicator tell traders? 

The Coppock Curve indicator was originally designed as a smoothed momentum oscillator with long timeframes. It generates a buying signal when it is below zero with a positive turning of its slope. It is not a verified generator of sell signals because short-selling is not the purpose of its functioning. The stock markets that generally remain in uptrend over time, the Coppock Curve mostly keeps its above-zero position.

Moreover, the Coppock Curve indicator’s calculations are based on the average data, the trend reversal should not expected from it. It intends to produce buying signals when a rally starts to take place. Traders can also adjust it in many different ways to make it more advantageous and fruitful. 

  • The Coppock Curve can be adjusted to get calculations of different time periods such as monthly, weekly, and even daily periods. However, its efficiency and effectiveness reduce with shorten time periods because of increased volatility in the market.
  • Traders can modify the Coppock Curve to work on different metrics instead of just working on 11 and 14 days rate of changes. 
  • The Coppock Curve can adjust to get multiple curves that help to spot crossovers and other events.

How to use the Coppock Curve? 

The use of the Coppock Curve indicator is not as complex and difficult as it seems. It is a Zero-Line based indicator. The Zero-Line functions as a trade-trigger. It gives the buying signal when the Coppock Curve is above zero and selling signals when the Coppock Curve is below zero. The selling signal indicates the time to close the long-position and the selling signal tells to restart the long-position. There is another Coppock Curve strategy that may prove fruitful. Proactive traders may initiate short trading after closing the long-position when the Coppock Curve moves below zero. Furthermore, traders who prefer to trade based on the closing price curve, they should go long when the line changes from bearish (indicated by red color) to bullish (indicated by green color). Similarly, they should go-short when the line changes from bullish to bearish. 

Limitations of the indicator 

We have discussed earlier that the Coppock Curve has established itself among the most useful trading tools. However, there are a few limitations associated with it that must be accounted for before using the Coppock Curve indicator in practical trading. Technical analysts and experts suggest to use it in conjunction with other technical indicators for confirmation of price fluctuations and changes in sentiments. The following are two main limitations that must be considered.

  1. The Coppock Curve may give false signals during choppy trading when the indicator moves above zero or below zero. This situation escalates when shorter timeframes are utilized such as daily or weekly bars.
  2. The default settings of the Coppock Curve are relatively arbitrary. This limitation may urge users to change them for curve fitting and to get reliable buying/selling signals.

Final thoughts about the indicator

Edwin Coppock originally designed the Coppock Curve to identify long-term investment opportunities. It generates buying and selling signals when the indicator moves above and below the Zero Line respectively. It generates very few signals over the course of years but traders can modify it with necessary adjustments to enhance its performance. The three variables involved in the calculations to get varied results. Multiple timeframes or curves can also be used according to the trading strategy of every individual trader. However, there are certain limitations that require to be considered by traders. It is always the best strategy to use the Coppock Curve indicator in combination with other technical analysis tools. 

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