The was created by E.W. Dreiss out of chaos theory, and attempts to gauge the current market's trendiness.
I've seen a few versions of this floating around, but this was built off the true version as described in the original 1993 release, you can read more about it here: http://www.edwards-magee.com/ggu/dreissc...
Values above 61.8 are considered very choppy, values below 38.2 are considered very trendy, but values along the entire scale can help you determine position sizing, or even weather you should be getting into this trade or not.
If you are looking for a new way to know weather the market is trending, about to trend, or just going sideways, this very handy indicator for algorithmic trading may be your answer.
Grab the source code here: http://pastebin.com/GEtpw6Pd
Installation video by @ChrisMoody here : http://blog.tradingview.com/?p=265
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I'd like as many people as possible to get it :)
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.
study("TheLark: Choppiness Index", overlay=false) length = input(14, title="Length") doavg = input(true,title="Do Average?") avg = input(4, title="Average Length") l1 = input(61.8, title="Extreme Chop") l2 = input(50.0, title="Midline") l3 = input(38.2, title="Trending") str = sum(tr,length) ltl = lowest(low <= close ? low : close,length) hth = highest(high >= close ? high : close,length) height = hth - ltl chop = 100 * (log10(str / height) / log10(length)) plot(chop, color=#42B0FF, linewidth=2) plot(doavg ? sma(chop,avg) : na, color=white) hli1 = hline(l1) hli2 = hline(l2) hli3 = hline(l3) fill(hli1,hli2,black,80) fill(hli2,hli3,#C8D974,80)