Malama's market chop

Malama's Market Chop is a technical analysis indicator designed to help traders quickly identify periods of market "choppiness"—that is, when price action is range-bound, lacking clear direction, and prone to false breakouts. By highlighting these sideways, indecisive market conditions, the indicator enables traders to avoid entering trend-following trades during unfavorable environments, or to adapt their strategies for range trading.
Problem Solved:
Many trading strategies perform poorly in choppy, non-trending markets, leading to whipsaws and false signals. This indicator provides a clear, visual method to detect such conditions, allowing traders to filter out low-probability setups and improve their overall decision-making.

While the Choppiness Index is a known concept, this script offers a streamlined, user-friendly implementation with several enhancements:

Custom Summation Function: The script uses a custom function to calculate the sum of bar ranges, ensuring precise control over the calculation and compatibility with Pine Script v6.
Visual Alerts: It provides immediate, on-chart visual cues (background highlights and triangle markers) to signal choppy conditions, making it easy to spot at a glance.
Real-Time Labeling: The current Choppiness Index value is displayed directly on the chart, keeping traders informed of the latest market state.
User Customization: Key parameters such as the lookback period and threshold are fully adjustable, allowing adaptation to different assets and timeframes.
Usefulness:
This indicator is especially valuable for:

Trend-following traders who want to avoid entering trades during sideways markets.
Range traders seeking to identify optimal periods for mean-reversion strategies.
Algorithmic/systematic traders who wish to use choppiness as a filter in their strategies.
How It Works: Detailed Methodology


1. Choppiness Index Calculation


Range Summation:
The script calculates the sum of the absolute price ranges (high minus low) for each bar over a user-defined period (chopPeriod).
Total Range:
It also computes the difference between the highest high and the lowest low over the same period.
Choppiness Index Formula:
The Choppiness Index is then calculated as:
Choppiness Index = 100 × log10(rangeSum / rangeTotal) / log10(chopPeriod)
This normalizes the value, making it comparable across different assets and timeframes.
Division by Zero Protection:
If the total range is zero (i.e., no price movement), the index is set to zero to avoid errors.
2. Choppy Market Detection


Threshold Comparison:
The indicator compares the current Choppiness Index value to a user-defined threshold (chopThreshold).
If the index is above the threshold, the market is considered "choppy" (sideways).
If below, the market is likely trending.
3. Visual and Signal Logic


Background Highlight:
When a choppy condition is detected, the chart background is softly highlighted in yellow, making it easy to spot periods of indecision.
Triangle Marker:
A small blue triangle is plotted below each bar where the market is choppy, providing a clear, bar-by-bar signal.
Current Value Label:
On the most recent bar, a blue label displays the current Choppiness Index value, keeping traders informed in real time.


Strategy Results and Risk Management


Note:
This script is an indicator and does not generate buy/sell signals or execute trades. Therefore, it does not include backtesting, position sizing, or risk management features. However, it is designed to be used as a filter within broader trading strategies, helping traders avoid entering positions during choppy conditions.

Guidance for Use:

Trend Strategies: Consider pausing or reducing position size when the indicator signals a choppy market.
Range Strategies: Consider activating mean-reversion or range-bound strategies during choppy periods.


User Settings and Customization


The indicator provides the following user-adjustable inputs:

Choppiness Period (chopPeriod):

Default: 14
Description: The number of bars used to calculate the Choppiness Index.
Effect: Shorter periods make the indicator more sensitive to recent price action; longer periods smooth out short-term noise.
Choppiness Threshold (chopThreshold):

Default: 61.8
Description: The Choppiness Index value above which the market is considered choppy.
Effect: Lowering the threshold will classify more periods as choppy; raising it will make the filter stricter.
These settings allow traders to tailor the indicator to different assets, timeframes, and personal trading styles.



Visualizations and Chart Setup


The indicator plots the following elements directly on the price chart:

Background Color:
Yellow (semi-transparent): Highlights periods where the Choppiness Index exceeds the threshold, signaling a choppy market.
Triangle Markers:
Blue triangles below bars: Mark each bar where a choppy condition is detected.
Current Value Label:
Blue label on the latest bar: Displays the current Choppiness Index value for quick reference.
Clarity:
Only elements relevant to the indicator’s function are plotted, ensuring a clean and focused chart presentation.