Introduction to the Coppock Indicator
Most technical analysis techniques and technical indicators used for trading the forex market come from traders who trade the stock market. The Coppock Curve or Coppock Indicator is one of the indicators that was specifically developed for trading the stock market.
The Coppock Curve formula was first introduced by Edwin Coppock in 1962.
It was developed for the purpose of identifying long-term trends. It was also intended to help traders identify when to buy, hold, and sell. As a long-term indicator, it traditionally used inputs on a monthly period.
Here we will look at how the Coppock Indicator can be applied on the lower timeframes and on the forex market.
What is the Coppock Indicator?
The Coppock Indicator is a trend following technical indicator which is geared towards identifying the long-term trend direction. It is an oscillator type of technical indicator which is based on an underlying moving average line.
The Coppock Indicator plots histogram bars to indicate the trend direction. These bars oscillate around a midline without a fixed range.
Positive Coppock bars indicate a bullish long-term trend direction, while negative Coppock bars indicate a bearish long-term trend direction. Crossovers between the Coppock bars and its midline, which is zero, is indicative of a long-term trend reversal.
How the Coppock Indicator Works?
The Coppock Indicator uses a formula which includes a Weighted Moving Average (WMA) and Rate of Change (ROC). It basically calculates for the WMA of the sum of two ROC values.
Coppock Curve = WMA of (ROC1 + ROC2)
The standard values used for the Coppock Curve is a 10-period WMA, a 14-period ROC, and an 11-period ROC.
However, this version of the Coppock Indicator uses different values as a preset. On the template used on this example however, we have modified the variables back to the standard values used on a Coppock Curve.
How to use the Coppock Indicator for MT4
The Coppock Indicator has several variables which can be modified to adjust its sensitivity within the indicator settings.
“RPeriod1” and “RPeriod2” modifies the number of bars used to calculate for the ROC values.
“RMAMode1” and “RMAMode2” modifies the type of moving average used for the ROC.
“MAPeriod” modifies the number of bars used to calculate for the moving average of the sum of the ROC values, while “MAType” modifies the type of moving average used for it.
Buy Trade Setup
When to Enter?
Open a buy order as soon as the Coppock Indicator plots a positive bar coming from a negative value.
When to Exit?
Close the trade as soon as the Coppock Indicator plots a negative bar.
Sell Trade Setup
When to Enter?
Open a sell order as soon as the Coppock Indicator plots a negative bar coming from a positive value.
When to Exit?
Close the trade as soon as the Coppock Indicator plots a positive bar.
Conclusion
The Coppock Indicator is a long-term trend indicator. As such, it can also show too much lag. Trading based solely on the Coppock Indicator signals can mean that the entries can be inaccurate due to the lag. This is why it should be used in confluence with other technical analysis indications and price action to confirm a long-term trend reversal.
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