Each of us faces the problem that when there is a tendency, all strategies work like a clock, but when it starts moving up and down, even a good and proven forex strategy suffers losses. So, how do you determine when it is not necessary to enter the market? This will help us to CMI (Choppy Market Index), an indicator of market volatility.

Choppy market index: a simple indicator that calculates the difference between the closing of the last (for now) the bar and the closing of the N bars and then divides that value by the difference between the highest HIGH LOW and the lowest these bars. The resulting number is multiplied by 100 to give a visual representation of the "instability" of the market in the range of 1 to 100.

Daniel FernandezIndicador, as well as a strategy based on it (see below), invented by Daniel Fernández, the material on trade with CMI was published in the August issue of Currency Trader.
After installing the Choppy Market Index in the table (any period of time and currency pair), we get a similar image:
As many have already guessed: the smaller the value of the indicator, the more unstable the market is. And the higher the value, the more clearly the presence of a trend. The inflection point (that is, when we can say that the trend has changed to strange movements and vice versa) is approximately the same level as 50.

The author also offers us a strategy based on the CMI indicator to operate on daily charts. Interestingly, two sets of rules are proposed: trading in a volatile market and trading in the presence of a trend.

Strategy Rules Choppy Market Index
Trading in the volatile market

Buy when the moving average indicator (blue line) below 40 CMI and the red CMI line itself.
Sell ​​when the moving average indicator (blue line) below 40 CMI and CMI of the green line.
Exit the position when CMI exceeds 50.
Trade in a trend market.

Buy when the blue moving average above 60 and the color of the CMI - green line.
Sell ​​when the blue moving average above 60 and the color of the CMI - red line.
Exit the position when CMI falls below 50.
In accordance with the previous strategy, I would not recommend the trade, but instead dedicate myself to understanding the CMI indicator, as well as its possible use to filter signals in trend monitoring strategies.

In the files Choppy_Market_Index.rar:

CMI.ex4
CMI.mq4
CurrencyTrader-Choppy Market Index Manual.pdf