Bride of If You Can Draw A Straight Line
- Thread starter dbphoenix
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Well, another "trying to catch the top on a trend day" kind of day. Hehehe. Once the first ship sailed the next entries were sub-optimal I guess. There is also the failure to do as expected "dog that did not bark" issue that I guess was what happened at 9:45, but still dont know how to deal with that.
Another thing I noticed today was the fact that the open was very much like yesterday, sellers test premarket low just to find no following and after that it was a buyers market.
Another thing I noticed today was the fact that the open was very much like yesterday, sellers test premarket low just to find no following and after that it was a buyers market.
I can't define "chop" for anybody else, particularly since it must be detected in real time. However, there are two relatively distinct types of "chop" that can be perceived in close-to-real time. One is the directionless sort with bars that are heavily overlapped. It's not quite a trading range, but it's not going anywhere either. One might also think of it as wide-range congestion. The other consists of a series of higher highs and higher lows, or vice-versa, which then reverse back down (or up) to what is not yet but might become a trading range. This is not exactly chop since price does have a direction. But the stride is aborted and price reverses back into territory that it already covered.
For example, this morning, price had been in a long downmove that ended at 38. It then made a series of higher highs and higher lows almost up to 43, followed by a double top. It then reversed and declined to test the swing low at 39.5, after which it took off a minute before the open. This to me is not chop but something that is telegraphing information that is tradeable. Granted it may be outside the simplicity of this thread (or simple-mindedness), but it does have to do with "chop", which is very much an issue for those to whom these lines are something new.
There is also of course the old saw about closing up shop once one has had two losing trades in a row. However, it appears that the same impulse which drives some traders to trade chop also prompts revenge trading, and the stop after two losing trades advice is pretty much wishful thinking. Giving someone criteria other than two losing trades may help them not only to stop but to avoid revenge trading. We'll see.
Just some food for thought, but something I do in order to improve my observation skills is to take the same chart and annotate multiple runs through it.
For example, I will have a chart of the open for a particular day, and I will draw on the lines I saw in real-time, along with entry/exit and a brief explanation of my thoughts. Later on, I will annotate some thoughts on what I would've liked to be seeing real-time, and some mistakes I potentially made. I will go back a third time even later and try again to read the chart left to right and apply the skills I have developed since, and try to annotate a better trading session.
Of course, the system is far from perfect due to hindsight bias, but it has helped me to continue to focus on shortening the gap between the narrative that I would like to see, which I can clearly perceive after the fact, and the actual information and conclusions I am perceiving when I watch price in real time. Don't know if it this would be useful for anyone else, but it has helped me to improve.
I dug up some fairly dated work of mine to demonstrate this. You can see that my thought process was fairly less refined and filled with some errors back then, but I think it is a good example of what I am attempting to describe.
And before I leave this, there is also the option which I generally take of avoiding trades which are bound by swing points, i.e., unless price can make a new swing high or new swing low, it is by definition ranging, and whatever trades one might take will not only be for small profits (and perhaps small losses) but will be more likely to enrich the broker rather than me. Granted it will annoy the trader to give up those extra points which in hindsight he would have realized if he had entered the trade at exactly the turning point which began the new trend, but this is something he will just have to get over. If one examines a large enough sample of chop, he will note that while the breakouts of some will fail and frustrate those who are eager to move on, the breakouts of others will be such a relief that they will lead to substantial trending moves that will more than make up for whatever points may have been unrealized by failing to get in at the very beginning, points which would more likely have been consumed anyway by all the chop trades that would have been taken in the meantime, resulting in the small losses that can be so dispiriting.
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