Choppy Market Testing Data Video and Indicator: VIEW

Every trader needs to identify and filter out the bad, choppy markets to make big profits.
For example, on this chart, the price is moving in the upward direction, then gives a pullback, and then moves back in the upward direction.
It looks like a typical uptrend.
The price is moving higher and higher.
And on this chart, the price moved up, then gave a pullback, and then moved back again in the upward direction.
Here, also, the price is in an uptrend, as it is moving higher and higher.
But on the left chart, we will get a really high win rate.
And on the right side chart, we will get a horrible win rate, even though both charts are moving in the upward direction.
We even have tested data on this.
You see, a few years ago on the Trading Rush channel, I took 100 trades on price movement that looked like the right side chart, and the win rate result was horrible, like a low 30 percent.
But on price movement like the left chart, the win rate increased by around 10 percentage point.
You can find this testing video and data on the Trading Rush channel.
But why does this happen?
Why does the left-side chart gives a higher win rate, but the right side chart gives a lower win rate?
You see, even though both charts are moving in the upward direction, if you pay attention to the minor details, you will notice that the right-side chart has a lot of up-down, up-down movement, even though it is overall moving in the upward direction.
On the left-hand side chart, the price is moving like a straight line.
For example, when it moves up, there are multiple green candles in a row.
And when it moves down, it shows multiple red candles back-to-back.
And when it moves again in the upward direction, there are multiple green candles in a row.
But on the right-hand side chart, after the first few green candles, the candles were switching directions frequently.
Since the price is still moving in the upward direction in total, we might think that buying on both of these charts will be the same.
Like, the price moved up, and we bought near the end of the pullback, and then we made a profit.
On this chart as well, the price moved up, and we bought near the end of the pullback, and we made a profit.
We might think that at the end of the day, the price moved up and we bought, and that’s all there is.
But in reality, this will not happen.
Here’s what will actually happen.
Imagine that on this cleaner chart, you are using an indicator to buy, something like an RSI or MACD.
When the price moves up and then down, indicators move in the upward direction and then down again, something like this.
If it’s an MACD, it will have another line and then create a crossover, and we buy when the crossover happens.
But on the right side chart, even though the price movement is overall the same, the indicator movement will look something like this.
If it’s an RSI, it will first start to move in the upward direction, and then it will come back down again very quickly, and then stay something like this, and then start to move up.
It can even move in the upward direction, and then move down, and then up and down, up and down, with big swings.
If it’s an MACD indicator, it can move up, then down, and then the MACD can give multiple crossovers, something like this in a spammy way.
But why does this happen on the right-hand side chart and not on the left-hand side chart?
Well, to understand this, we first have to see how the indicator itself is calculating these values.
For example, on this chart, let’s say the MACD is taking the previous five candles to calculate its value.
The actual MACD takes more candles, but for this example, let’s say it takes the previous five candles to calculate things.
So, when the price moves up, it looks at these five candles and says the momentum is going up, so the MACD value moves up.
And when the price loses momentum in the upward direction and reverses back, the MACD looks at these five candles and can clearly see that the price moved up and then down, and so its value will also move up and then down.
And at the reversal point, it will give a crossover, something like this.
And similarly, when the price moves down, it will show a clear downward momentum.
And when the price loses the downward momentum and tries to move up again, the MACD will give a crossover in the upward direction, something like this.
So far, it is very simple.
The MACD is quite accurately showing the momentum change on this chart, and that’s why we use it to take entry trades near the end of the pullback.
But if we had bought before, like when the downward momentum was strong, then we would have lost the trade because there was no sign of the price moving in the upward direction.
But now, notice the same thing, the same momentum, on the right-hand side chart.
Here, the MACD is using the same five candles to show the momentum.
So, in the first five candles, it sees a strong upward momentum, which is starting to lose its upward strength near the end.
So, on the MACD indicator, we see a strong upward move, and then it shows the momentum loss using a crossover.
And then the price moves down.
However, if you look at the 5 candles like the MACD, you will notice that they are not really moving with strong momentum in the downward direction.
On the left chart, they are clearly moving in the downward direction really fast, and so the MACD showed it the same fast way.
But on right side chart, since the price movement went down and then reversed back again, the MACD also moves down and then reverses back again really quickly.
You see, when the price starts doing a lot of up-down, up-down moves while moving in the downward direction in total, the MACD also starts doing a lot of up-down, up-down moves.
However, since the MACD is only looking at a limited number of previous candles, the smaller up-down movements on the right chart, become way bigger, compared to the left chart movement.
So, you might have thought that you would have taken a buy entry near the end of the pullback, just like on the left chart.
But on the right-hand side chart, since the MACD was going up and down so much, it would have created so many crossovers.
In other words, it would have created so many false entry points, and your actual entries would have looked something like this.
You would have bought multiple times during this downward pullback, because that’s what your indicator strategy was showing.
That’s the difference between these two charts that leads to a 10 percentage point higher win rate versus a 10 percentage point lower win rate.
And this up-down movement is what we call a choppy market.
So, the big question is: how do we actually identify choppy markets so that our win rate will automatically get higher, just like the tested data showed?
Well, in my entire 10-year trading journey, I have used a very simple method to identify choppy markets.
You see, when I was a price-action-only trader, I realized I could use the frequent color switching of the candles to my benefit.
For example, on this chart, if you simply pay attention to the candlestick colors and not the direction, you will notice that it’s more green, green-green-green, and then red, red-red-red-red, and then green-green-green.
But on the right-hand side, it’s more like green-red-green-red, then green-red-green-red, and repeat.
So, here’s how I used this simple monkey brain logic to my advantage.
If the candles are more green-red-green-red-green-red like this, then simply don’t take trades in it, because that’s more likely to be a choppy market.
If I see straight moves where I don’t see color switching frequently, then I know it’s a clean movement very easily.
A few years ago, when I created the free Trading Rush Choppy Market Indicator, it was based on this exact same price action rules I found many years ago.
For example, if you notice on this chart, there are many back-to-back red candles.
The candle colors are not switching frequently, and as a result, on the Trading Rush Choppy Market Indicator, you can see multiple green bars.
Basically, if the candle colors are the same, the indicator shows more green bars, and this violet line moves up.
The higher the line is, the cleaner the price movement is.
But on this chart, we can see the candles are switching colors quite frequently: it goes from green to red, then red to green, then green to red.
And on the Choppy Market Indicator, you can see there are no green bars, and as a result, the violet line turns an orange-reddish color and moves down, indicating a not-so-clean movement, or a choppy market.
However, this violet-reddish line is like a moving average that is based on these green bars, and just like a moving average, it is a bit slow to react to new data.
For example, if the green bars disappear, the line will take a little time to move down, because that’s just how indicators work if we try to reduce their noise.
And even though this Choppy Market Indicator has improved the win rates of strategies in previous testing videos, I highly recommend you learn to identify choppy markets using the price action itself, just like I did around 10 years ago.
But if you struggle to filter bad markets using naked charts, then you can use this Choppy Market Indicator as a hint, but not its violet-reddish line; instead, use the green bars, because the green bars are not lagging.
As soon as it detects clean movement, the green bar will appear and will get darker as it detects cleaner movement.
And as soon as choppy markets appear, the green bar will disappear, and you can use that to see where the choppy market starts and where it ends.
Now, let’s look at some real charts.
I have this Bitcoin USD chart open on the 30-minute timeframe, and based on everything you have learned so far, you can easily spot the choppy market on this chart.
If you look here, even though the overall movement is in an upward direction, the candlestick patterns switched direction quite frequently.
And as you can see, the MACD indicator gave a lot of crossovers in a really short amount of time in this bad, choppy movement.
This is what leads to a lower win rate.
On the other hand, take a look at this chart here: the price is in a good downtrend, but the candles are not switching directions that frequently like before, and as a result, there are no false or early crossovers on the MACD indicator.
The MACD is clearly showing that the price stilll has strong downward momentum.
So, that is the best choppy market filtration method I know, that is actually backed by hundreds of trades tested data.