- Type of Indicator: Momentum
- Creator: Edwin “Sedge” Coppock
- When Created: 1960s
- First Mentioned In: The Coppock Curve was first mentioned in an article titled “Is It Time to Buy Stocks?” published in Barron’s in October 1962.
What Is The Coppock Curve?
The Coppock Curve is a technical analysis indicator used in finance to identify long-term buying opportunities.
It was developed by Edwin “Sedge” Coppock, an economist who served as the executive director of the Episcopal Church Foundation.
Coppock developed the indicator in the early 1960s by studying long-term market trends and identifying a pattern of market bottoms that followed a period of significant declines.
There is a common belief in psychology that it takes humans an average of 11 to 14 months to recover from the emotional and psychological effects of a major loss or trauma.
Edwin Coppock, the creator of the indicator, was a trained economist and not a psychologist. However, he recognized the similarity between this psychological phenomenon and the patterns he observed in the stock market.
Coppock believed that the stock market also experienced periods of emotional and psychological exhaustion after a significant decline or loss, much like humans do after experiencing trauma or loss.
He observed that these periods of exhaustion were often followed by a period of recovery. After a recovery, the market would start trending upward again.
Based on this insight, Coppock developed the Coppock Curve. The tool uses a long-term moving average and a rate of change calculation to identify when the market has reached a bottom.
How Do You Read The Coppock Curve?
The Coppock Curve has been widely used by investors and traders to identify long-term buying opportunities in the stock market. It works particularly well during periods of economic recession or depression.
The tool is a lagging indicator that is designed to capture the long-term momentum of the market.
How Does The Indicator Work?
The Coppock Curve works by measuring the sum of the rate of change of the closing price over two time periods and applying a weighted moving average to the result.
When the curve crosses above the zero line, it may indicate a potential long-term buying opportunity.
To create the indicator, Coppock combined a long-term moving average with a rate of change calculation. This can help identify when the market had reached the bottom of the curve and was likely to start trending upward again.
How Is The Coppock Curve Calculated?
The indicator is calculated by adding the rate of change values of two moving averages (usually 11 and 14 periods). The values are then smoothed using a 10-period weighted moving average.
The calculation further involves taking the sum of the ROC of the closing price over two time periods and applying the WMA to the result.
The specific time periods and weighting factors used in the calculation may vary depending on the trader’s preference .
How Do You Use The Coppock Curve?
Long-Term Buying Opportunities: Traders can use the Coppock Curve to identify potential long-term buying opportunities in the stock market. When the curve crosses above the zero line, it may indicate a potential long-term buying opportunity.
Confirmation: The indicator can also be used to confirm other technical analysis tools or chart patterns. For example, a bullish divergence between the Coppock Curve and the price may indicate a potential trend reversal to the upside.
Trend Identification: Traders can also use the tool to identify potential trends in the market. When the curve is trending upwards, it may indicate a potential uptrend. A downwards trending curve may indicate a potential downtrend.
Additional Trading & Risk Management Tips
Adjust the time periods and weighting factors used in the calculation to suit your specific trading style and the market being analyzed.
Be aware that the Coppock Curve is a lagging indicator. This means it reflects past price movements and may not accurately predict future price movements. Therefore, use it in conjunction with other technical analysis tools to make more informed trading decisions.
Utilize proper risk management techniques to protect your investments in addition to using the Coppock Curve when making trading decisions.
Use the tool on historical data to understand its strengths and weaknesses and to develop a solid trading strategy. Practice using the Coppock Curve using a TradingView account to backtest performance.