How do you avoid choppy markets?
- Thread starter Golden Retriever Trading
- Start date
Part of the art of trading is to "trade around the correct bias". That's usually "trend". "Benefit of the doubt" to longs when in uptrend. Vice versa to shorts in downtrend.
Chop by its very nature is more difficult. If you can identify it as a "trading range", then "buy the bottom of the range, sell the top of the range".
Regardless of your tools and methodology, the market's fluctuations will at times have the proper frequency and amplitude to give you heart burn.
If you're getting jerked around too much, flatten and take a rest. You don't have to trade every day.
If you are talking about choppiness in "short term" pricing, it is all part of the randomness and chaotic nature that exists. By the time the "trend" has switched ( and you won't know it ), you may have engaged in 2 - 3 losing trades that wipe out those hard fought gains that you previously curated after hours of concentration. And all within a strategy's reward to risk ratio of maybe slightly higher than 50/50 ( hopefully )? Or are you just fooling yourself ?
Investing in/with long term trends in the U.S. equity markets present the best reward to risk and compounding of capital because underlying companies "grow" and "produce" goods and services. Commodities and currencies don't "produce" anything. When we look at a chart of the long run of the equities market, we see an inexorable upward trend. Stocks go up 60+% of the time and down 30+% of the time. The markets are also "supported" by monetary easing, bargain hunting, and a giant workforce that go into the "office" and "produce".
There are stock universes / ETFs and empirical tactical methods that can be used to push the reward to risk further to the positive; and with just a few transactions per year.
Investing in/with long term trends in the U.S. equity markets present the best reward to risk and compounding of capital because underlying companies "grow" and "produce" goods and services. Commodities and currencies don't "produce" anything. When we look at a chart of the long run of the equities market, we see an inexorable upward trend. Stocks go up 60+% of the time and down 30+% of the time. The markets are also "supported" by monetary easing, bargain hunting, and a giant workforce that go into the "office" and "produce".
There are stock universes / ETFs and empirical tactical methods that can be used to push the reward to risk further to the positive; and with just a few transactions per year.
The OP's assertion that "whipsaws suck of course" indicates that he/she is convinced that trend following is the only way to trade the markets. The trend following misery is the mean reversion glory, and vice versa.
Study them and then work out how/why they break out of the chop.
Many traders don't like them but others LOVE them, some of the lovers like to sell high/buy low and others specialise in trading when they break out (and that's not ususally to buy the breakout high (or sell the low) although that can work well if you understand the clues price normally offers before a successful breakout. Go study 100 of them, then another 100 and so on. That's the only way to learn, forget about computers you/I and most people can't compete versus the computer power others have but we can easily compete visually. In fact, I wouldn't be surprised if some of the best technical traders around still use hand drawn charts.
Many traders don't like them but others LOVE them, some of the lovers like to sell high/buy low and others specialise in trading when they break out (and that's not ususally to buy the breakout high (or sell the low) although that can work well if you understand the clues price normally offers before a successful breakout. Go study 100 of them, then another 100 and so on. That's the only way to learn, forget about computers you/I and most people can't compete versus the computer power others have but we can easily compete visually. In fact, I wouldn't be surprised if some of the best technical traders around still use hand drawn charts.
Talking of ranges, there's been a nasty range for the last several hours on the DAX from about 11am UK time till 15:00. But price has just broken out. The price to buy I reckon was 9918. Try to work out why that price, why it broke out and what happened beforehand to offer any clues that a) it would and b) 9818 or around that level was the place to go long. Use 1m and 5m charts.
True. Good traders love volatility and choppy markets.
Except when they are not in front of their comp screens.
CM
"How do you avoid choppy markets?"
A worthy question. But one not easily answered, for two reasons. Most of the answers you've received so far fall under reason #1. Most of the respondents know even less than you do on this topic. Trust me on this.
Reason #2: possibly one or two respondents can give you a straightforward practical answer but knowing how to avoid chop is valuable knowledge. Why would anyone just give it away to strangers on the internet?
That said, I will give you a lead. Not the best but hopefully a step up from what you're doing now. Good luck with your search for trading truth.
http://www.moneyshow.com/articles.asp?aid=daytraders-27013
A worthy question. But one not easily answered, for two reasons. Most of the answers you've received so far fall under reason #1. Most of the respondents know even less than you do on this topic. Trust me on this.
Reason #2: possibly one or two respondents can give you a straightforward practical answer but knowing how to avoid chop is valuable knowledge. Why would anyone just give it away to strangers on the internet?
That said, I will give you a lead. Not the best but hopefully a step up from what you're doing now. Good luck with your search for trading truth.
http://www.moneyshow.com/articles.asp?aid=daytraders-27013