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Academy > Technical Analysis > What is Coppock Curve Indicator: Predict the Bitcoin (BTC) Bottom Easily >

What is Coppock Curve Indicator: Predict the Bitcoin (BTC) Bottom Easily

2022-04-15 13:26:25

Summary

  • Coppock curve is a moving average based indicator that is designed for long-term price movements.
  • The indicator leverages human behavior based on 14-month grievance and recovery periods, allowing us to predict the length of a market downturn and upswing.
  • The data is smoothened using a 10-month rate of change, based on the recent price action of Bitcoin.
  • The formula is based on the Weighted Moving Average (WMA) and Rate of Change (ROC).
  • The indicator is used in conjunction with other indicators such as RSI (Relative Strength Index), MA (Moving Average), MACD (Moving Average Convergence Divergence), and Bollinger Bands.
  • The Coppock Curve indicator is a Phemex indicator available for free to all users on all trading pairs such as BTC/USDT, ETH/USDT, and others.

coppock curve

What is the Coppock Curve?

The Coppock Curve indicator is a long-term Bitcoin (BTC) and cryptocurrency trading indicator based on arithmetic moving average and human psychology. The Coppock Curve indicator is used on the 1W and 1M charts to measure long-term Bitcoin and altcoin price movements, but it can also be used on the 1D, 4H, and short-term charts.

The Coppock Curve uses mathematical measurements based on a 14-month grieving period — predicting the approximate length of a downtrend in the market. This indicator can give reliable buy signals when Bitcoin has bottomed out. It’s a less popular indicator, but it can validate long-term trades based on historic patterns and current price action.

The indicator oscillates above and below zero. If the curve shows a number above 0, this is a good time to buy Bitcoin. If the number goes below zero, it’s often a sell signal and the sign of a market downturn. In this respect, it’s similar to the RSI indicator by providing us with reliable buy and sell signals.

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Coppock Curve History

Coppock Curve is named after Edwin Coppock, an entrepreneur and economist based in San Antonio, Texas. He was the founder of Trendex Research and a member of the Episcopal Church.

Coppock asked a Bishop at the church how long the average grieving period was for humans when they get over the death of a loved one or have an accident. He was told humans take 11-14 months on average to grieve. Similar to how humans grieve over the death of a loved one, they experience emotional grieving periods over the downturn of stock and this is reflected in the market sentiment.

Using the insight on grieving periods, he relied on arithmetic data to derive a formula for long-term trading. Coppock used this to come up with the formula for the Coppock Curve and presented it as an indicator that would replicate normal human behavior on the stock markets.

The indicator was announced in 1965 in Barron’s magazine. At first, it was used to identify trends in stock market indexes such as the Dow Jones, NASDAQ, and S&P 500. As trading technology advanced, it was implemented in the crypto markets. The old indicator worked for monthly charts only, but new indicators can be adjusted with any custom settings.

Coppock Curve Formula

The Coppock Curve formula defaults are based on three variables: 10-month Moving Average, 11-month Rate of Change, and 14-month Rate of Change. These settings can be adjusted to longer periods or shorter using the settings on Phemex.

The formula is the following:

WMA (10) of RoC (11) + RoC (14) = RESULT. 

WMA stands for “Weighted Moving Average. This is the recent moving average of Bitcoin’s price, based on the price-performance in the last 10 months.

ROC stands for “Rate of Change.” This is the rate at which the Bitcoin price is oscillating during the past 11-14. It accounts for the human psychology of grievance and recovery over 11 and 14 months.

Note: The 10, 11, and 14-month variables are arbitrary. Coppock used the answer he got from the bishop as the basis for his formula. There is no scientific evidence that humans go through a 14-month grieving period when they lose a loved one or grieve over stock. The Coppock Curve calculation will also vary based on the trader’s custom input settings.

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How to Use Coppock Curve 

Let’s use Phemex platform for this demonstration. The Coppock Curve indicator is available on all Phemex trading pairs. To start using the indicator, open a trading pair on the spot markets. For this demonstration, we’ll use the most traded BTC/USDT pair:

BTC USDT chart on Phemex Aug 2021 March 2022

The BTC/USDT spot trading chart on Phemex.

The “D” selection at the top-left indicates we’re using the daily chart. Press on “Indicators” at the top and a new window will open up. Search for “Coppock Curve”:

search for coppock curve

The search bar locates all available indicators.

Left-click on “Coppock Curve” and the indicator will appear below the candles:

Coppock Curve indicator on the chart

The Coppock Curve indicator appears below the candle chart.

Notice how the chart was split into two parts: The price of Bitcoin and the indicator below it. The defaults of “10”, “14”, and “11” are numbers that represent the formula listed above – showing us Bitcoin price movements over 10, 14, and 11 months.

On the right-hand side of the indicator, we see Bitcoin is oscillating near the “0” value which is the median value (that was at ‘40’ a month ago). For Coppock curve intraday analysis, we use the “D” chart. If we switch to “W” (1 week), it will show us a completely different result:

Coppock Curve indicator on a weekly chart

Each time switch on the changes the values for the indicator.

On the weekly chart, Bitcoin is below 0 on the Coppock Curve. This indicates that Bitcoin is still in a minor bear market from a long-term perspective, despite being up 8% for the day.

The last time the Coppock Curve on the weekly chart was above 0 was in November 2021 when Bitcoin reached an all-time high of $69,000. This indicates that the curve is highly reliable for predicting long-term price movements and the historic price reflects that.

If you want to adjust the blue line and change it to white and/or change any of the default monthly settings, hover over the “Coppock Curve” bar in the bottom-left and press “Settings”:

adjust Coppock Curve

Settings allow us to adjust the indicator according to our preferences.

This pulls up a new settings window where you can adjust the WMA/ROC lengths under “Inputs” and the color of the line under “Style”:

Coppock Curve settings

The value settings and visual settings can be easily adjusted.

Let’s say we believed the grieving period was 6 months instead of 14 months. We could assign the “Long RoC Length” a value of “6”, press “OK”, and the chart would change completely:

adjusted Coppock Curve

 

The settings are applied instantly after the trader confirms changes.

Notice how the value was changed to “6” instead of “14” in the settings on the bottom-left. Coppock curve trading settings are easily adjustable in real-time.

Coppock Curve Strategy

The Coppock Curve oscillates below or above zero and that tells us if Bitcoin is about to rally or enter a bear market. It’s similar to trend indicators, however, it’s based on a much longer time-frame and the human factor.

If the value shows a number above 0 such as +40, this could be an indicator that we’re in a bull market and it could be dangerous to purchase in case of a trend reversal. Conversely, if the oscillator is at -40 and Bitcoin is spiraling down, this is not a buy signal because the trend could continue downwards.

The simplest Coppock Curve strategy is to wait for it to go below 0 on the weekly chart and buy when it starts trending above 0. Using this strategy, you are basically waiting for Bitcoin to break out from a downturn over many months and purchase at the right time (i.e. market timing).

At the time of writing, Bitcoin has a -24 rating on the weekly chart:

Coppock Curve value for Bitcoin

The Coppock Curve value for Bitcoin at the present moment.

If Bitcoin proves bullish over the next week and breaks out above the 0 mark, this could be an indicator that it’s starting an upwards rally.

Market timing in the crypto markets is essential due to volatility. In stock markets, the prices tend to go up permanently but the gains are a lot lower. The Coppock Curve on stock markets will almost always be above 0. In crypto markets like Bitcoin, it’s very common for the Coppock Curve to go below 0 and then climb back up, right at the time Bitcoin is about to rally.

Using Coppock Curve with Other Indicators 

The Coppock Curve indicator can be combined with other indicators on Phemex. The RSI (Relative Strength Index) indicator is one of the most popular indicators used to signal the strength or weakness of Bitcoin’s price.

The RSI indicator which shows “overbought” or “oversold” values can be used as confirmation the price is moving in the right direction. To combine the RSI indicator with the Coppock Curve indicator, press on “Indicators” again and enter “RSI.” It will show up in the search bar.

Left-click on RSI and it will load it up below the Coppock Curve indicator:

RSI combined with the Coppock Curve

The RSI indicator combined with the Coppock Curve indicator.

Notice how the RSI indicator is a bit more volatile and tends to oscillate up and down the bar, while the Coppock Curve is flatter. This is because the latter is designed for month-long moves and won’t move unless there is significant price action based on required metrics.

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Conclusion

The Coppock Curve is a unique trading indicator that can serve as a trade trigger for patient traders who want to minimize risk in the highly-volatile crypto markets. It can also be used in conjunction with other indicators to plan long trades on Phemex.

There are more than 100+ other indicators that can be combined with the Coppock Curve to confirm a breakout on Bitcoin on any of the 50+ spot trading and futures pairs.

If we analyze historic price movements of Bitcoin with the zero line on the Coppock Curve, we can confirm its historic accuracy because every time Bitcoin rallied to a new all-time-high it picked up from below the zero line. This makes it one of the most reliable indicators to date.


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