Chop 2

[kut2k2]

why do I need to get out when it starts chopping? What difference does it make whether it is sitting in my brokerage account in some foreign currency or sitting in my bank account in base currency? If it's not trending it is none of my concern. I got better things to do than keep up with every little thing that is chopping. The only thing that concerns me is what is trending, especially as to how it is not trending against me.

I get out when chop appears because (1) the next trend may be a reversal and I don't get caught with a large loss because I didn't act, (2) no telling how long the chop will last, which means you're not making money. If I get out, I can put that money to use elsewhere where there is a trend. (3) Peace of mind. No trend means no trade means no worries. So get in when there's a trend, get out when there isn't, even if the price is "flat".

I hate to sound like Jim Cramer but he's got one thing right: "Never let a trade turn into an investment."

 

[xandman]

On a side note, I have seen good trend systems that incorporated a time stop to stay out of the market. It may take awhile for strong trends to re-materialize though that may sound like data mining to some of you.

 

[Autodidact]

I don't try to tell the market what to do, I let it tell me what it is doing and respond appropriately. In that sense, there is no premature exit. When the chop rises, the trend weakens to the point where it can no longer justify the trade. That's when to exit. I can always get back in when a new trend arises, which may be a continuation or a reversal. Doesn't matter. What matters is having a sufficiently strong trend to justify the trade.

The question here is, can we profit from a sufficiently strong chop? Certainly not by following a trend trading strategy, but maybe something else ....

Many times chop is what you get before resumption of the old trend, waiting, could prove costly. ie Worse Fills, Bigger Stops, Less Reward

 

[kut2k2]

Many times chop is what you get before resumption of the old trend, waiting, could prove costly. ie Worse Fills, Bigger Stops, Less Reward

I'm going to assume you meant "not waiting could prove costly.". Yes, and so could getting caught in an avoidable reversal. There are always trade-offs in trading. We each have to decide which ones we can live with.

 

[Redneck]

So ... the market has turned choppy and all trend trades have been exited.

First, my definition of chop

Equidistant..., near equidistant - adjacent bars occurring in opposite directions


Could be in the form of a range (horizontal)

Could be in the form of a biased range (slight angle)

Either way - it akin to a picket fence

=================================

You say the mkt turned choppy

On your TTF..., next higher TF..., next lower TF - or what

If it on your TTF.., or higher - drill down

If it on the lower - drill up / plan to hold longer / assume more risk (from the entry)

Goal is always to find a low risk entry

Is it possible to initiate a new profitable trade in these conditions? And if so, any suggestions how?

Yes,

If the choppy range wide enough

And

If one can find a low risk entry

And

One quick


RN

 

[eurusdzn]

Maybe arbing the mean is a form of chop trading. A ratio or difference line of a very close pair
can look like chop. Well known method is to intitate at the low frequency edges/margins and
close at the high freqency mean.
Rather than late recognition of chop and an inevitable breakout from it in normally trending,
single legged instruments, one could search for pairs where this chop is more persistent or normal and apply your method.

 

[jimmyjazz]

you can't make any money trading something you and everybody else knows

Really? I can't make money off the fact that, long term, the S&P 500 or the Dow tend to trend upward? Surely I'm not the only one who knows this.

 

[Tavurth]

In the two images attached I've included my opinion of Chop and Trend:


I believe that to answer the question, "how can we trade chop profitably", we must ask: "why does the chop exist?"

One other poster has already mentioned that the chop causes retail and small players to exit the market place. To take this idea further, I believe that chop exists so that larger players can accumulate or distribute inventory, before marking the price to the new retail level.

For me, trading chop is about filling those orders, getting the big players happy in a position, and then getting out, before they start to mark the price against me.

The market rewards players who increase efficiency, and in the times when my order helps to fill liquidity, I will most likely have a positive expectancy.

 

[wrbtrader]

So ... the market has turned choppy and all trend trades have been exited.

Is it possible to initiate a new profitable trade in these conditions? And if so, any suggestions how?

Thanks.

Trend, Range and Chop (there's a flow in the price action between them)

First of all, most traders are not profitable regardless if they trade trend, range or chop. Secondly, to be a profitable trend trader...it implies you have a good understanding of range and chop. Just the same, to be a profitable range trader implies you have a good understanding of trend and chop. Going further, for the purpose of this thread...to be a profitable chop trader implies you have a good understanding of trend and range.

The fact is this. Chop (whipsaws, sideways price noise) do often occur in range and trend.

Therefore, to trade chop, implies you need to first recognize if the price action is in a range or trend. For example, pretend you're a trend trader and the price action pauses and chops around before continuing the trend...you then make a decision to open a new position in that chop because you think the trend will continue.

Another fact...most chop has their own s/r levels and/or they occur near a s/r level.

Lets now pretend you prefer to trade a trend and open your trend trade position in chop. Lets now pretend the trend is UP and then the price action pauses...chop shows up but you really don't care if its chop or range in the pause. Lets now pretend you've identified the price pause as Chop (not range).

1) You can open a Long position near the S area of the chop and try to ride the price action upwards through the R area of the chop as the trend continues higher.

2) You can open a Long position near the R area of the chop and try to ride the price action upwards as the trend continues higher.

3) You can open a Long position above the R area of the chop as a "breakout" and try to ride the price action upwards as the trend continues higher.

4) You can open a Long position near the S area of the chop and ride it up to the R area of the chop and then exit the position.

The above methods are obviously a trader that's trading in the direction of the overall trend. Therefore, although the trader is a Chop trader...the trader is also a Trend trader and the trader will obviously then need to understand a trend.

If you don't understand your departure...you will get lost and not understand your arrival.

Simply, if you want to trade profitably the chop...you absolutely must determine what type of price action that chop has showed up within. If you're able to do that, you can then use the appropriate trade strategy for trading that chop.

Thus, via the above example, its critical that you decide that if you want to trade chop...you first identify if that chop is a price pause in a trend or range. Next, you must decide if you're going to trade in the direction of the trend or counter-trend trade the trend. In contrast, if you're going to counter-trend trade the trend as a Chop trader...obviously you're going to use the above examples and Short instead of going Long.

Now to answer your question...

Is it possible to initiate a new profitable trade in these conditions?

The answer is YES and you can be consistently profitable at it if you have all the other variables in place (e.g. discipline, money management, position size management, market context, proper capitalization and so on). Reality, most will not be able to do it...just the few because they have all the other variables in place because profitable trading involves more than just trade signals.

There's one particular trader (audited and verified) that does such. He's frequent competitor at the Salon du Trading competition. Its a competition in front of a live audience, real money competition, broker platform and trade executions on a big screen in front of a live audience, all trades double checked and verified in real-time...all while the audience is allowed to ask questions as the trades occur.

Don't believe the myth it can't be done. Simply, think outside the box.

P.S. The above is enough info for you to chew on and then do your own research. Good luck.

P.S.S. I hate chop, I do poorly in it but I've gotten a lot better at it via following the above guidelines. Its a work in progress for me and trading in chop is not something I primarily do because most of my discipline problems occurs in chop.

 

[kut2k2]

This subject is getting overcomplicated so let's simplify it. Let's assume we have a security that is only moving in pure chop, i.e., there is absolutely no trend. The chop is flat; it isn't upsloping or downsloping because that would involve trend. There is no range because range is a series of alternating trends, and here there is no trend.

There is only pure chop, alternating continuously between two price levels.

Is this tradable?