Choppiness index calculator
Trend or back-and-forth.
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Trend or mean reversion test
Does this market follow through or snap back? The variance ratio test on your closes, with how sure the answer is.
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The closes
The answer
No clear lean: the closes look like a random walk; the 4-bar variance ratio is 1.23 with a z-score of +1.10, inside ±1.96, so too close to 1 to call.
- What it means
- Neither trend-following nor fading has had a clear edge from the pattern of the closes alone; any edge has to come from somewhere else.
- Bar to bar
- The correlation of each return with the one before is +0.15: a rise has tended to follow a rise.
- How it works
- If prices wander at random, the variance of 4-bar moves is 4 times the variance of 1-bar moves, a ratio of 1. When moves follow through, longer moves vary more than that (above 1); when they reverse, less (below 1). A z-score beyond ±1.96 is the usual line for a lean that chance alone rarely makes.
- Read it with care
- With 80 closes the test is weak: only a strong lean shows. Markets also change character, so a lean in these closes says nothing certain about the next ones. Paste more closes for a firmer answer.
The variance ratio, its z-score and the reading for each horizon the closes allow. The main reading is marked.
| Horizon | Ratio | Z-score | Reads as |
|---|---|---|---|
| 2 bars | 1.17 | +1.54 | leans trending |
| 4 bars | 1.23 | +1.10 | leans trending |
| 8 bars | 1.22 | +0.65 | leans trending |
| 16 bars | 1.69 | +1.40 | leans trending |
Education only, not investment advice. The answer comes from the numbers you typed in, not from your account or the market. Simulated results are hypothetical and have limits: real trading has slippage, gaps, changing results and emotions. Trading leveraged products can lose money quickly, including all of it. Risk warning
Educational only, not financial advice; trading involves risk.
Pick the style the market rewards
A trend-following rule and a mean-reversion rule are opposite bets. Which one a market has rewarded shows in its returns: Andrew Lo and Craig MacKinlay's variance ratio (1988) compares the spread of longer moves with the spread of single bars. Quant desks use it, with the Hurst exponent and autocorrelation, to decide whether to trade a market with trends or with fades.
Look at trend and range on the chart with the choppiness index and the ADX, see how runs of closes ended with the close streak calculator, and size the trade with the position size calculator.
Not advice. Statistics on the closes you type; a test on past prices does not predict the next ones.
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Baroq never holds your money and never trades for you. Educational only, not financial advice; trading involves risk.