Coppock Curve
Edwin Sedge Coppock, an economist by profession developed the Coppock Curve in 1965, which is a momentum indicator to identify long-term buying opportunities in the S&P 500 and Dow Industrials.
Coppock used monthly data to find buying opportunities but did not use the indicator much for sell signals.
Now let’s take a look on how the Coppock Curve is calculated?
Coppock Curve = 10-period weighted moving average of the 14-period RoC + 11-period RoC
RoC stands for Rate-of-Change which is the momentum oscillator and oscillates above and below the zero line. The default setting for the Coppock is 11 and 14 periods.
The Coppock Curve is a smoothed momentum oscillator and can be used on any timeframe while investors can choose based on their desired trading/investing style and time horizon. Coppock Curve is similar to the most widely used indicator- MACD
The weekly charts produce many more signals than the monthly chart. Likewise, an intraday chart would form more signals than the weekly or monthly charts.
Apart from choosing the timeframes, parameters can also be adjusted based on the trader’s choice. Traders can choose whether they want to go for a faster or a slower Coppock Curve indicator. A shorter RoC setting would make the Coppock Curve more sensitive and faster, which would be best for Intraday traders. Meanwhile, a longer setting would make the Coppock Curve less sensitive and slower which could be a favorable indicator for swing traders.
How to identify signals using Coppock Curve
If the Coppock Curve crosses zero and enters into positive territory than a buy signal is generated.
If the Coppock Curve falls below zero and enters into negative territory than a sell signal is generated.
Below is the one day Amazon chart since 2014 (till July 6th, 2016). The buy signals in the below chart are highlighted with the blue line while the red line indicates the sell signal.
As you can see, long-term traders would have a number of opportunities to enter the bullish trends for Amazon.
Coppock Curve
Coppock Curve could also be used to trade ETFs.
Below is the image of the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) 3-minute chart from July 1st 2016. As you can see in the beginning of the chart, a buy signal was generated during the initial trading hour, as the Coppock Curve crossed above the zero line. Accordingly, we opened a long position at $107.61.
After about an hour or so, you can see that the Coppock Curve began heading towards zero. Simultaneously, you see that the PowerShares QQQ Trust ETF is consolidating. After the Coppock Curve fell below zero, immediately we exited the position at $108.2.
Coppock Curve Long Position
Now, since the founder of the curve used longer time frames to identify buying opportunities, let’s now shift our focus over to daily charts.
Below we have a chart of Goldman Sachs from the period of March 15th, 2016 till June 30th, 2016.
On the last day of March, the Coppock Curve is showing a positive trend, as the curve is above zero and generated a positive signal.
Accordingly, we initiate a long position on March 31st at $156.02. As you see in the below chart, the Coppock Curve has maintained a positive trend for the initial week. On May 10th 2016, the Coppock Curve fell below zero and gave a sell signal. We cover our long position at over $160.
However, if you combine the Coppock Curve along with the Hull MA, we could have booked our profits in a better range, as the indicator started giving a bearish trend well before the Coppock Curve’s sell signal. If we had followed the Hull MA indicator, then we could have booked profits near $163. However, this depends on the trader’s preference.
Coppock Curve Long Trade Signal
Divergence with the Coppock Curve
Another way of trading the Coppock Curve is identifying divergences with the indicator and the current price action.
A bullish divergence occurs when the market makes a higher high, but the Coppock curve is unable to exceed its previous high.
Below, you can see the 5-minute chart of Alcoa from May 2nd to May 30th, 2016. On the extreme left hand side of the chart, you can see that we have highlighted the new highs of the price, while the Coppock curve is making lower tops.
However, the Coppock curve immediately raised above zero while prices also increased, confirming the bullish divergence. However, bullish divergence is not a definite indicator of the trend, which is why traders should avoid taking positions solely based on divergences with the Coppock Curve.
Coppock Curve Divergence
Similarly, a bearish divergence occurs when prices decline from lower bottoms, but the indicator makes a higher bottom. From the above image you can see that the highlighted elliptical part for the same Alcoa chart has formed lower bottoms, but the Coppock curve made a higher bottom indicating a bearish divergence. You can see how the stock has fallen after that, as highlighted by a red trend line in the chart.
Again, we do not recommend making trading decisions solely based on divergences between the Coppock Curve and the price action.
Challenges of using the Coppock curve on intraday charts
The Coppock curve is generally better at catching market bottoms (i.e long term opportunities) as compared to short opportunities as the founder has mainly developed this indicator to identify buying opportunities.
But, the major drawback of the indicator is giving false signals and forcing investors to short or exit their position. The signal could again give a buy signal within a shorter timeframe. This might create confusion for traders in quick succession.
Below is the three-minute chart for Microsoft on June 29th, 2016, which is the perfect example of this scenario.
Here you can see that the Coppock curve has been heading downwards as highlighted with the blue trend line. For the same period, you see a range bound or in fact a slightly bullish trend from the Microsoft chart.
After some time, the Coppock curve fell below zero but you don’t see any downtrend in the price activity. After the false signal, the Coppock curve began rallying upwards through the zero line. As you can see, Microsoft’s price rallied the remainder of the day.
False Coppock Curve Signals
Trading Coppock Curve with the Hull MA
Hence, to avoid these shortcomings in the indicator, let’s combine the Coppock Curve with the Hull MA.
Below is the three-minute chart for Alphabet Inc. (NASDAQ:GOOGL) from June 30th 2016.
During the second half of the trade, you can see that the Coppock Curve generated a bullish signal by trending above zero and this trend is supported by the Hull MA. Accordingly, we take a position near $698. Both the Hull MA and Coppock Curve maintained their bullish trend till the close of the day at which point we exited the position at $704.34.
Another thing to note in the below chart is that you see a very flat direction from the Hull MA curve during the mid-session of the trading, while the Coppock Curve has been rising above zero and then subsequently falling below zero after some time. Intraday traders can avoid such false signals by taking support from the second indicator of their choice.
Coppock Curve and Hull MA
Trading Coppock Curve with KST
Now let’s combine the Coppock Curve with the Know Sure thing indicator (KST).
We take a look at the three-minute chart of BlackRock, Inc. (NYSE:BLK) from June 30th, 2016.
In the below image, you can see the bullish crossover in the Know Sure Thing indicator. Consequently, the Coppock Curve generated a buy signal by passing above zero. We take a position at $336.41. After trading more than two hours, we get the first sell signal from the Know Sure Thing indicator. By then the Coppock Curve started trending downwards. Traders could exit their long position here at over $339.
Coppock Curve and KST
Trading Coppock Curve with the MACD
Let’s now combine the Coppock Curve along with the most commonly used trading indicator - MACD to identify any trading opportunities for intraday traders. We take the Goldman Sachs Group Inc. (NYSE:GS) three-minute chart for June 30th, 2016 and add the Coppock Curve and MACD.
Now, if you see the below chart, we get the first buying opportunity from the MACD crossover at around 11 am.
This trend is also supported by strong volumes.
Consequently, the Coppock Curve crosses above zero strongly confirming the bullish trend.
Accordingly, we take a long position at $146.11. After trading more than two hours, we receive misleading signals from the MACD.
However, the Coppock Curve is still maintaining a strong bullish momentum and maintaining above zero. We book our profit near $148.04 after the Coppock curve falls below zero. By then, the MACD has given the bearish indicator. Intraday traders could exit their position when they see the first signal from the MACD. But this choice depends on their preferred indicators, trading style and investment horizon.
Coppock Curve and MACD
On the other hand, to avoid the confusion in the sell signals (as this is where the Coppock Curve lags), we can use the third indicator to confirm the sell trend based on the trader’s preference.
Conclusion
- The Coppock Curve was developed by Edwin Sedge Coppock in 1965 to identify long-term buying opportunities in the S&P 500 and Dow Industrials.
- A buy signal is generated when the Coppock Curve crosses zero and enters into positive territory, while a sell signal is generated when the Coppock Curve falls below zero and enters into negative territory.
- The Coppock Curve could also be traded based on divergences, but we think it’s not a good idea for intraday traders as this could lead to many false signals.
- The Copper Curve also comes with its own shortcomings and gives a relative weak sell or short position signals as compared to the buy or long positions signal.
- The Coppock Curve could be used by intraday traders to identify the bullish trends. The indicator could also be traded along with Hull MA, Know Sure Thing Indicator and MACD.
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