Chop 2

kut2k2 · Jul 5, 2015

This thread is a reboot of a previous thread

( http://www.elitetrader.com/et/index.php?threads/chop.292695/ )

which, because of a troll, quickly went toxic. I apologize for letting myself get dragged into a flame war and will not do so in this thread.

The goal of this thread is to determine if choppy markets can be profitably traded. Although I am not asking for anyone's detailed chop-trading plan, if someone wishes to volunteer such, it will be a much appreciated contribution.

We all know chop is devastating for trend trades. Clearly one or more alternative strategies must be used if profits are to be extracted when price "goes sideways".

First let's establish some basic definitions so we all start in the same place. If you find you just can't tolerate a particular definition, please constructively propose a usable alternative.

From Investopedia, we get the following definitions:

Trend : http://www.investopedia.com/terms/t/trending-market.asp
http://www.investopedia.com/terms/t/trendtrading.asp

Chop : http://www.investopedia.com/terms/c/choppymarket.asp

Range : http://www.investopedia.com/terms/r/rangeboundtrading.asp

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.

loyek590 · Jul 5, 2015

no, they can not be traded profitably. There is no one in the history of trading that ever made it as a bracket trader. Trading the chop is an allusive dream we have all succumbed to from time to time. But no, you can't trade it profitably. And the only one's who say you can just haven't been trading that long.

But you can make a lot of money trading the trend

loyek590 · Jul 5, 2015

the difference is, the chop is clearly defined, the trend is always unknown

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

loyek590 · Jul 5, 2015

loyek590 said:
the difference is, the chop is clearly defined, the trend is always unknown

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

that's why I always say, "I know how much I can lose. I never know how much I can make."

loyek590 · Jul 5, 2015

but night after night, day after day, week after week, and sometimes month after month you get to thinking, "Man, this chop is killing me! I could have made a fortune if I was just trading it."

loyek590 · Jul 5, 2015

so I suppose, a good trader knows when to trade for the trend and when to trade for the chop...and that is a better trader than me

kut2k2 · Jul 5, 2015

loyek590 said:
no, they can not be traded profitably. There is no one in the history of trading that ever made it as a bracket trader. Trading the chop is an allusive dream we have all succumbed to from time to time. But no, you can't trade it profitably. And the only one's who say you can just haven't been trading that long.

I think bracket trading is a form of trend trading where you anticipate a breakout. No surprise that fails when chop is rampant.

I'm thinking there's something that works anticipating a reversal.

I was thinking about scalping. It really doesn't make sense to scalp when the trend is strong. You'll make a lot more money from one nice long trend trade. Fewer commissions at the least. So maybe the only time it makes sense to scalp is during chop.

loyek590 said:
But you can make a lot of money trading the trend

Totally agree. Just remember to get out of the trade when the chop appears.

Autodidact · Jul 5, 2015

kut2k2 said:
Totally agree. Just remember to get out of the trade when the chop appears.

On the contrary! This is what chop does to amateur traders, it makes you exit a planned trade prematurely, or worse take actions you were not supposed to take before chop appeared.

loyek590 · Jul 5, 2015

kut2k2 said:
I think bracket trading is a form of trend trading where you anticipate a breakout. No surprise that fails when chop is rampant.

I'm thinking there's something that works anticipating a reversal.

I was thinking about scalping. It really doesn't make sense to scalp when the trend is strong. You'll make a lot more money from one nice long trend trade. Fewer commissions at the least. So maybe the only time it makes sense to scalp is during chop.

Totally agree. Just remember to get out of the trade when the chop appears.

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.

kut2k2 · Jul 5, 2015

Autodidact said:
On the contrary! This is what chop does to amateur traders, it makes you exit a planned trade prematurely, or worse take actions you were not supposed to take before chop appeared.

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 ....