Written by Justin Kuepper. Updated by TraderHQ Staff.
The Coppock Curve is a momentum indicator introduced by Edwin “Sedge” Coppock in an October 1965 issue of Barron’s. After being commissioned by the Episcopal Church to find long-term investment opportunities, the burgeoning economist reportedly asked bishops how long it took for people to get over the death of a loved one and developed a series of calculations based on the 11 and 14 month changes.
In this article, we’ll take a look at how to calculate and interpret the Coppock Curve as well as some examples of its usage and limitations to consider.
Calculating the Coppock Curve
The Coppock Curve is calculated using a relatively simple formula based on the rate of change indicator (“ROC”). Specifically, the calculation is the 10-day weighted moving average (“WMA”) of the 14-period ROC plus the 11-period ROC. The WMA places more weight on recent data and less weight on older data by multiplying the first data point by 1, the second data point by 2, and so forth.
The Coppock Curve = WMA [ 10 ] of (ROC [ 14 ] + ROC [ 11 ])
According to Investopedia’s guide on the Coppock Curve, this indicator was originally designed for monthly charts to identify long-term buying opportunities in major stock indices.
Interpreting the Coppock Curve
The Coppock Curve is simply a smoothed momentum oscillator with long timeframes that have only generated a few signals throughout recent history. While the indicator generates signals in both directions, most technical analysts prefer to watch for sell signals rather than buy signals. In fact, the monthly indicator has successfully predicted the last two bear markets in 2000 and 2008.
Figure 1. Coppock Curve Signals – Source: StockCharts.com
The Coppock Curve can also be adjusted in many different ways:
- Different Periods – Coppock Curves can be calculated using monthly, weekly, or even daily periods, although the indicator gets progressively more choppy as the duration of the periods shortens due to increased volatility.
- Changing Metrics – Coppock Curves are designed to be calculated with 11-day and 14-day ROCs, but traders can adjust these numbers as necessary in order to increase the accuracy of the indicator in certain cases.
- Multiple Curves – Multiple Coppock Curves can be utilized in order to identify crossovers and other events, similar to the way in which MACD and moving averages are interpreted when looking for buy or sell signals.
Examples of Coppock Curves
The Coppock Curve can be interpreted in many different ways, using many different timeframes and many different settings. In Figure 2 and Figure 3 below, we’ll look at two unconventional ways of using the indicator and what the charts may mean for traders, although it’s important to keep in mind that the indicator is best used in conjunction with other technical indicators rather than on its own.
Figure 2. Daily Coppock Curve Example – Source: StockCharts.com
Figure 3 shows a Coppock Curve based on the daily prices of the S&P 500 SPDR ETF (NYSE: SPY). While the traditional Coppock Curve is meant to be a monthly indicator rather than a daily indicator, the daily version provides some key insights including a buy and sell signal from crossing above and below zero, respectively.
Figure 3. Weekly Coppock Curve Divergence – Source: StockCharts.com
Figure 4 shows a weekly Coppock Curve and MACD indicator on the Dow Jones Industrial Average ETF (NYSE: DIA). In this case, the Coppock Curve and MACD both indicate a bearish divergence that could signal an upcoming correction, although the Coppock Curve hasn’t crossed below the zero line quite yet to generate a definitive sell signal.
Limitations of the Coppock Curve
The Coppock Curve has a number of limitations that traders should carefully consider before using the indicator in practice. To overcome these limitations, traders should use the indicator in conjunction with others to confirm price movements and changes in sentiment.
Some limitations to keep in mind include:
- False Signals. The Coppock Curve generates a lot of false signals, where the indicator crosses above or below the zero line during choppy trading, particularly when using shorter timeframes like daily or weekly bars.
- Curve Fitting. The Coppock Curve’s default settings are relatively arbitrary, which means that traders may be tempted to change them in order to curve fit a given index or equity and generate buy/sell signals.
The Bottom Line
The Coppock Curve is a momentum indicator introduced by Edwin “Sedge” Coppock in an October 1965 issue of Barron’s. The Coppock Curve is calculated by adding the 10-day weighted moving average (“WMA”) of the 14-period ROC to the 11-period ROC. The buy and sell signals are generated when the indicator crosses above and below the zero line, respectively. The Coppock Curve can be modified by changing the three variables involved in the calculation, as well as by using multiple timeframes or curves. Traders should be aware of the Coppock Curve’s limitations, which include false signals when using shorter timeframes.
Frequently Asked Questions
What is the best timeframe for the Coppock Curve?
The Coppock Curve was originally designed for monthly charts to identify long-term buying opportunities in major stock indices. While it can be applied to weekly or daily charts, shorter timeframes tend to produce more false signals and choppy readings. Most professional traders stick with monthly or weekly charts for the most reliable signals.
Can the Coppock Curve be used for individual stocks?
Yes, though it was originally designed for market indices. When applying it to individual stocks, be aware that the signals may be less reliable due to higher volatility. Consider using it alongside other technical indicators like MACD or RSI to confirm signals before making trading decisions.
How do I combine the Coppock Curve with other indicators?
The Coppock Curve works well when paired with trend-following indicators like moving averages or MACD. Use the Coppock Curve to identify potential long-term trend changes, then confirm with shorter-term indicators. For example, a Coppock Curve buy signal combined with a MACD bullish crossover provides stronger confirmation than either signal alone.