Choppy Markets

[sdoma 10]

I am sitting here watching the YM slowly swaying back and forth in a sloppy, irregular range and I have to wonder - who trades these markets well? Do any of you? What are your methods, what are you doing? Do you get killed when the market starts to move again?

 

More specifically, three questions:

 

1. How do you identify a slow, choppy market? This might seem too obvious, but I'm interested to see your thought process.

 

2. How do you trade them? Do you simply avoid them and wait for volatility to pick back up?

 

 

3. Do you raise your size? What is your money management like?

[SIUYA 11]

1. How do you identify a slow, choppy market? This might seem too obvious, but I'm interested to see your thought process.

 

I look at basic higher high and lower low analysis - nothing fancy, but once you get some cross overs here - eg; a bull market - seeing low swings getting taken out, this helps change my mindset. Its crude, but without hindsight its the best i have come up with. This helps me switch from bull to nothing to either bull or bear later.

 

2. How do you trade them? Do you simply avoid them and wait for volatility to pick back up?

 

Try and avoid them, but if the mindset can switch successfully enough, then they are places to avoid. I try and stick by the adage that its easy making money and hard to hang on to it, and so areas of chop are best avoided.

 

3. Do you raise your size? What is your money management like?

See 2.....reduce, reduce, reduce, avoid.

 

This is more obviously a context and relative thing - 1 hour of chop on a 5 min chart can still do a lot of damage, while weekly chop can provide opps. I look at a longer time frame of chop in order to try and change the mindset, as this might give me more an indication of when chop (or more unpredictable reversals) can occur. All basic, simple and more about looking at a chart and working out when to avoid the obvious.

[zdo 20]

1. How do you identify a slow, choppy market? This might seem too obvious, but I'm interested to see your thought process.

I don't discuss my MarketTyping techniques for identifying and classifying congestion, but in my 'thought process' it has always been of extreme importance to id it early.

Published material on the topic is limited. If you haven't read the works of Joe Ross on the topic, The Law of Charts 'book' (if I remember correctly) is a good starting place for objective price pattern measures of "slow, choppy market" on any timeframe.

There is also some follow-up material at The law of ledges, congestion, and trading ranges | Trade2Win Forums etc If I remember correctly Ross made some contributions to the thread.

TL has a few other threads on the topic...search. ... and the TS forum has some good / different / insightful material...

Long ago and before I got all 'complicated' with it, I used a Jurik MA (with inputs of (h+l+c+c+c)*.2, for price and a length of 4 periods) on a 4 minute chart on most instruments (big S&P, US, etc.) for an objective measure. When it went flat instead of rolling on over... very accurate going into and out of congestion with very little lag...

 

2. How do you trade them? Do you simply avoid them and wait for volatility to pick back up?

Early detection is the key. Ultimately, for me at least, including more than one type of congestion is important too (low interest vs tense types, etc). I use envelopes to trade them selling the top and buying the bottom with very small stops. Because of MarketTyping and from developing techniques for leading identification of when a congestion is likely to end, accuracy is almost 90% W/L (as it must be for such systems, btw) The envelopes started out as Keltners, but the code has evolved so much over the years that there is nothing keltner about them inside (even though most of the time they still look like Keltners . .. it's now those times when they don't look like Keltners that differentiates them).

re: "Do you simply avoid them ...? " Most traders I know study them and conclude "Too much trouble... and limited rewards" It's system dependent really. Many systems need to avoid them like the plague...

 

3. Do you raise your size? What is your money management like?

I raise size for the systems that are designed for congestion and cut size significantly for those that are designed for other MarketTypes. For some subtypes of congestion, I do just barely reduce overall size. I also decrement size after each trade (and increment size for breakout/ acceleration systems in some conditions)

 

hth stim some innovations for you.

[Tradewinds 12]

1. How do you identify a slow, choppy market? This might seem too obvious, but I'm interested to see your thought process.

 

I have two basic trend patterns that I have identified. If either of those trend patterns fail to adhere to their exact pattern, I automatically assume that the market is going into a choppy phase. But choppy doesn't necessarily mean choppy sideways. There are real trends that are volatile. There can actually be quite well defined trends that are difficult to recognize as a trend because of volatility. Those kinds of trends can cause a lot of draw down. You get caught in larger than normal draw down, then think it's a trend reversal, when in reality it's just more volatility. So you could reverse, then be caught on the wrong side of the trade all over again. Do that to many times, and you give up all your profit. There are times of day when a slow, choppy market is almost guaranteed. There are probably major support and resistance levels where choppiness is almost guaranteed. There are news events that will almost guarantee a choppy market.

[sdoma 10]

Oddly enough, I've always been so focused on riding the bigger pulls that I never really dissected chop trading. Also, it's always drummed into a new trader to stay away from it. The more I look at it, the more I'm convinced that there's a lot of money to be made there if you know what you're doing and have a good rig with a fast connection.

 

Here's what I am noticing about chop thus far:

 

1. Chop exhibits a lot of swing overlap. In a trend, you won't have more than one swing overlapping another, and most of those two won't be overlapping.

 

2. Most tests beyond a swing high or low fail and retrace most or all of that swing. So, even if you have some sort of a directional move, and you are trading in that direction, you will be stopped out if you aren't trading accordingly.

 

3. The worst thing you can do is get in right near a swing high or low and play for continuation. In a move with more momentum, that type of play will pay you. In chop, you'll face plant nine times out of ten.

 

Basically, an initial conclusion is that you'd be better off fading swing points, especially if you see passive buyers coming in and absorbing the mo mo buying or selling. You will suffer the occasional loser, but you could grind out a nice day if you are nimble.

[BlowFish 10]

Basically, an initial conclusion is that you'd be better off fading swing points, especially if you see passive buyers coming in and absorbing the mo mo buying or selling. You will suffer the occasional loser, but you could grind out a nice day if you are nimble.

 

Indeed, and as many markets spend relatively little time trending you often get more opportunities. Another plus is as you are entering close to an extreme you can afford pretty tight stops.

 

You also get markets that chop and slowly move directionally (Lots of backing and filling). These are often seen in 'corrections' that are counter the 'main' trend.

 

As some one said back up the thread early detection of what you are dealing with is key is key.

[zdo 20]

re "3. The worst thing you can do is get in right near a swing high or low and play for continuation. In a move with more momentum, that type of play will pay you. In chop, you'll face plant nine times out of ten."

Yes! I failed to mention on congestion trades I get out quickly - most of the time before price makes it even half way back across the envelope.

Also, I take a max of 6 trades (basically scalps) per congestion and usually only 3 or 4 - with (as I mentioned above) decreasing size on each one... Since the mkts congest so often and consistently and the hit rate is so high, trading congestions bumps the bottom line up by over 20%...

 

An aside re nature vs nurture: TN if you read this, these "genius" techniques were concieived and developed in the 30yr US intraday market of March 1987 - by necessity. A "strong fast focused resilient" player would not have needed to make such adaptations...

[nilesh mishra 10]

suppose we are in uptrend and stock/index is making higher pivot highs and higher pivot lows, then a stage comes when prices becomes unable to take out the previous pivott highs and makes a pivot high in the area of previous pivot high or a lower pivot high then breaks a minor pivot low, then we are in possible sideways trend.

 

at this stage I shift my trading techniques from trending markets to sideways maket. For sideways market I use Bollinger band and RSI combination and scalps

 

regards

nilesh

[Guest OILFXPRO]

Just look at sloping moving averages and sloping channels and trend lines and keep wider stops

[Guest OILFXPRO]

I am sitting here watching the YM slowly swaying back and forth in a sloppy, irregular range and I have to wonder - who trades these markets well? Do any of you? What are your methods, what are you doing? Do you get killed when the market starts to move again?

 

More specifically, three questions:

 

1. How do you identify a slow, choppy market? This might seem too obvious, but I'm interested to see your thought process.

 

2. How do you trade them? Do you simply avoid them and wait for volatility to pick back up?

 

 

3. Do you raise your size? What is your money management like?

 

 

Markets get choppy when there an equilibrium of sellers and buyers near major support and resistance levels are likely areas of chop..Prices fallen below mean values often cause chopiness.

 

I try to keep out of choppy ranging markets by looking , moving averages ,trendlines ,channels and slopes , and looking at higher times frames and trend indicators.Most trend traders lose most of their profits and more in choppy markets.Keep out of ranging markets , it is a 50/50 reward/risk ratio .I take one set up a week on each instrument per week, many traders take 50 trades a week like a bllnd monkey throwing darts at prices.

 

Raising size is like a football team who can't score goals to win , but merely corrupt the game to win.Trade small to start with a small trial size , if market is responsive and context and support and resistance levels are known , and one can read deep into charts ,increase trade size.Don't take the first or second opportunities of the morning or in a ranging market, and don't take the first breakout in a trend , wait for a second confirmation.Raising size and winning instills false beliefs in the subconcious, it will only end up in disaster one day.

Edited November 24, 2013 by OILFXPRO