What is Coppock Curve Indicators | How to use this Indicator

In the realm of technical analysis, the Coppock Curve stands as a momentum indicator primarily used for spotting key trend changes in the stock market. Edwin Sedgwick Coppock introduced it in the late 1960s, intending to identify buying opportunities in market lows or after severe downturns.

What it is and what it shows
The Coppock Curve is essentially a smoothed momentum oscillator derived from the rate of change in a market’s price. The formula involves the sum of a 14-period rate of change and an 11-period rate of change, which is then smoothed using a weighted moving average.

Mathematically, it’s represented as:

• Coppock Curve = WMA(10, ROC(14) + ROC(11)) ]

Where:

• ROC(x) is the x-period Rate of Change
• WMA(y) is the y-period Weighted Moving Average

The primary signal given by the Coppock Curve is the movement from negative to positive values, suggesting a potential buy signal. Conversely, a move from positive to negative values isn’t traditionally used as a sell signal but can indicate declining momentum.

How to trade it

1. Buy Signal: One of the main rules of trading the Coppock Curve is to consider buying when the indicator moves from a negative territory to a positive one. This upward cross can signify the end of a downtrend and the beginning of a potential uptrend.

Example: If the S&P 500 index has been in a prolonged downturn and the Coppock Curve moves from -5 to +1, it might be seen as an opportune moment to consider long positions or add exposure to the market.

2. Divergences: While the traditional use of the Coppock Curve doesn’t involve sell signals, traders can still look for bearish divergences as a potential warning sign. If the market continues to rise, but the Coppock Curve starts to decline, it may indicate weakening momentum.

Example: If the Dow Jones Industrial Average is hitting new highs but the Coppock Curve fails to make a corresponding high and starts to turn downwards, it can signal that the momentum behind the uptrend may be faltering.

3. Filtering Noise: Given that the Coppock Curve is a longer-term indicator (often monthly), it can help filter out short-term noise. It’s beneficial to use it in conjunction with other technical tools to ensure more precise entries and exits.

The Coppock Curve, while not as commonly used as other momentum indicators, offers a unique perspective on market bottoms and potential buy opportunities after significant downturns. However, like all technical tools, it should not be used in isolation. Combining it with other indicators and incorporating a robust risk management strategy can help traders make the most of the insights offered by the Coppock Curve.