How To Use Coppock Curve To Make Better Trades

The indicator that is well-known for identifying the major bottoms is the Coppock Curve. This indicator helps in recognizing potential trend shifts and for generating trade signals. Let’s learn more about this indicator.

What is The Coppock Curve?

Created by economist Edwin Coppock in 1962, the Coppock Curve was initially intended as a long-term buy or sell indicator for major indices like the S&P 500 and the Wilshire 5000.

The Coppock Curve is formed by adding the 10-day weighted moving average (WMA) of the 14-period rate-of-change (ROC) to the 11-period ROC. It can be modified by changing these three variables, as well as by using multiple timeframes or curves.

The Coppock Curve is basically a momentum indicator. Its value oscillates above and below zero. The figure below shows the Coppock Curve indicator.

The Coppock Curve and Zero Line

The zero line of the Coppock Curve is significant as a trade trigger.

  • Bullishness: Whenever the Coppock Curve moves above the zero line, it indicates bullishness. Traders usually initiate long positions during this cross above the zero line.
  • Bearishness: Whenever the Coppock Curve moves below the zero line, it indicates bullishness. Traders usually initiate short positions during this cross below the zero line.
  • Reversal of Trades: The bearish signal (cross below the zero line) is used by traders with long positions to close their trade and enter short positions. They then re-initiate long positions when the Coppock Curve moves above the zero line again. Similarly, bullish signal (cross above the zero line) is used by traders with short positions to close their trade and enter long positions. They then re-initiate short positions when the Coppock Curve moves below the zero line again.

The Coppock Curve and Trading Signals

The speed of the trading signals changes when the value of the variables is decreased or increased in the Coppock Curve.

  • If you want to get early signals for entries and exits, you can decrease the WMA from 10 to say, 6.
  • If you want to increase the number of trade signals (and also increase the speed of fluctuations in the Coppock Curve), you can decrease the value of ROC.
  • If you want to decrease the number of trade signals (and also decrease the speed of fluctuations in the Coppock Curve), you can increase the value of ROC.

The indicator works best in trending markets. So, establishing a dominant trend in a longer time frame will help to eliminate poor trades on lower time frames. For example, the dominant trend in the weekly chart can be taken into consideration when taking new trades in the daily chart.

  • Bullish: In the weekly chart, if the Coppock Curve (CC) is above the zero line, make sure to choose only long trades on the daily chart. When the CC is below zero in the daily chart, the longs can be exited. However, refrain from taking short positions when CC is below zero line in the daily chart, as the dominant trend is still up in the weekly chart.
  • Bearish: In the weekly chart, if the Coppock Curve is below the zero line, make sure to choose only short positions on the daily chart. When the CC is above zero in the daily chart, the shorts can be exited. However, refrain from taking long positions when CC is above zero line in the daily chart, as the dominant trend is still down in the weekly chart.

The figure below shows how to enter and exit trades using the Coppock Curve.

Happy Trading!

Tara