Profit from ranging and trending conditions!
“The CMI is a simple indicator that gauges whether the market has behaved in a choppy (non-directional) manner or a trending (directional) manner. The indicator calculates the difference between the most recent bar’s close and the close n bars ago and then divides this value by the difference between the highest high and lowest low over these n bars.”- DANIEL FERNANDEZ (Currency Trader Magazine, August 2011 issue – page 20)
The CMI indicator enables an easy way to build a daily strategy that can profit from both ranging and trending conditions by incorporating 2 entry rules. The first will tackle the range, while the second will handle the trending market. Both entries will have exit positions when the CMI crosses the 50 percent level, which suggests uncertainty about whether the market is ranging or trending.
- Range strategy rules
1. Enter long when the smoothing MA (blue line) of the CMI is below 40 and the CMI line color is red.
2. Enter short when the smoothing MA (blue line) of the CMI is below 40 and the CMI line color is green.
3. Exit trades trades when CMI moves above 50.
- Trend strategy rules
1. Enter long when the smoothing MA (blue line) is above 60 and the CMI line color is green.
2. Enter short when the smoothing MA (blue line) is above 60 and the CMI line color is red.
3. Exit trades when CMI moves below 50.
For in depth description of the strategy (including a back test for this strategy 1999 – 2010) please see
“Tackling trending and ranging markets with CMI ” article by DANIEL FERNANDEZ in the August 2011 issue of Currency Trader
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The Choppy Market Index Indicator & strategy for MT4,