Choppy Market? Go Play Golf!

[Soultrader 12]

One of the most important things for a trader is to recognize a trend from a rangebound market early in the trading day. In my opinion a trader needs to identify this within the first 30 minutes of trading. (15 minutes would be great)

 

There are numerous ways to watch for levels of participation in the markets. For those of you who have pit noise, this helps alot. You can clearly hear the noise level in the pit and usually the speaker will point out if the pit is full or not. Volume is also a good sign to watch for to determine whether we are likely to see trend or chop. You should always know the average volume for the underlying contract you trade during the initial 5 mintues.

 

Now, in a strong trend... the opening price can act as the dead low or high for the day. When price rotates above and below the opening price, we are likely to see a balanced and rangebound market.

 

For tape readers, the obvious can be seen in the flow of the tape. Is the tape stuck in traffic? Or is it flowing smoothly showing interest. The market needs confidence in either way (bull vs bear) for it to trend intraday. The tape clearly shows how traders are hesitant and undecided.

 

Another method I use is by comparing time on a 233 tick chart. Usually, the first initial candlestick bar will complete in 1 minute. When it exceeds over 2 minutes, there is a clear lack of market participation. Lets take a look at market action from Feb. 5th, 2007. Below is a chart of the YM.

 

 

Notice the complete rangbound market and the narrow range of approx 50 points. Not a great market to be trading wouldnt you say? Now, lets take a look at the first 233 tick bar.

 

[media=380,380,false]http://www.traderslaboratory.com/Videos/ymfirstbar.avi[/media]

 

Notice how the first 233 tick bar takes 4 minutes to complete. The average time is usually 1-2 minutes. There is clearly a lack of commitment by traders.

 

Its hard to stay away when you have the trading juice pumped inside you. But on days like Feb. 5th, its a great idea to pack your stuff and take a hike.

[TinGull 10]

True that!

[wsam29 10]

And if you live in Toronto, its stay inside and keep warm!

[walterw 10]

yes, great post Soul, here in Argentina we are in summer, so I take a deep on the pool... lol Walter.

[notouch 10]

I personally love to trade in range-bound markets. It's easy to identify support and resistance and risk and reward is more easily defined. Markets spend 80-90% of their time in ranges. There are always great micro-trends and fib trades with YM even if it looks like a range-bound market.

[walterw 10]

Yes notouch, its some how true what you say, I am working in a strategy that will capitalize on range conditions too.... it will use delta as the mainframe aproach... thought you need a lot of experience in the market for "timing" and thats what scares out most traders... cheers Walter.

[wsam29 10]

What a tight range today...zzzzzzzzzzzz.

[TinGull 10]

Yup...I'm staying out.

[walterw 10]

at the end of today session I will share some nice and "Incredible" trades I did papertrade today experimenting a new delta indicator.... a variant of VDO... surprisingly nice way to see this horrible choppy thing... cheers Walter.