The Coppock Curve is a momentum indicator developed by Edwin “Sedge” Coppock, who was an economist by training. Coppock introduced the indicator in Barron's in October 1965. The goal of this indicator is to identify long-term buying opportunities in the S&P 500 and Dow Industrials. The signal is very simple. Coppock used monthly data to identify buying opportunities when the indicator moved from negative territory to positive territory. Although Coppock did not use it for sell signals, many technical analysts consider a cross from positive to negative territory as a sell signal.
The Coppock Curve is simply a smoothed momentum oscillator. Even though it was originally designed for monthly charts and long-term analysis, it can be used on intraday, daily or weekly charts and the settings can be adjusted to suit one's style. The main signals are generated with crosses above and below the zero line. More aggressive chartists can consider looking for bullish and bearish divergences to anticipate such crossovers. Be careful though. Divergences do not always result in trend reversals because the trend can simply slow and continue in the same direction.
The Rate-of-Change indicator is a momentum oscillator that oscillates above and below the zero line. Coppock used 11 and 14 periods because, according to an Episcopal priest, this was the average mourning period when grieving the loss of a loved one. Coppock theorized that the recovery period for stock market losses would be similar to this timeframe.
The Rate-of-Change indicators were then smoothed with a weighted moving average. As its name implies, a weighted moving average puts more weight on recent data and less weight on older data. For example, a 3-period WMA would multiply the first data point by 1, the second data point by 2 and the third data point by 3. The sum of these three numbers is then divided by 6, which is the sum of the weightings (1 + 2 + 3), to create a weighted average.
Using monthly data, this indicator will not trigger very many signals. A buy signal triggers with a cross into positive territory, while a sell signal triggers with a cross into negative territory.
As noted above, the Coppock Curve is simply a smoothed momentum oscillator. The Rate-of-Change indicator measures momentum and the weighted moving average smooths the data. This means the indicator can be used on any timeframe. Intraday, daily and weekly data can be used to fit one's trading/investing style and time horizon.
In addition to different timeframes, the parameters can be adjusted to make the indicator faster or slower. A shorter Rate-of-Change setting will make the Coppock Curve more sensitive and faster, while a longer setting will make it less sensitive and slower.
Calculation:
Coppock Curve = 10-period WMA of (14-period RoC + 11-period RoC)
WMA = Weighted Moving Average
RoC = Rate-of-Change
Source: http://stockcharts.com
Default Parameters:
PeriodWma: 10
PeriodRocLong: 14
PeriodRocShort: 11