How to Distinguish between trending and Choppy Days
- Thread starter Flashboy
- Start date
i've always thought there's something to that.
The very best way to distinguish between a trending day and a choppy day is to scroll back after the day is over and look.
Going forward, however, it cannot be done with any meaningful degree of confidence. Therefore, the only thing you can reasonably do is to trade smaller when you hit a rough patch and ensure that your setups meet more of your entry criteria than usual. Once out of that rough patch, you can resume business as usual. And so on.
If you think "indicators" can do better than that, then back test them, but also be sure to rigorously forward test them with out-of-sample data. Then you will see that a coin does just as well. Remember, we are not talking about trade selection. Rather we are referring to an attempt to distinguish between a trending day and a choppy day, A PRIORI.
Regards,
Thunderdog
Your request is another statement of the P, V relation.
Some logical limitations do exist, however.
Prediction is not possible and, fortunately, it turns out to be unnecessary.
There is a requirement to trade the market in one or the other modes in which it operates. That is a priori. Your ID of these two is necessary and can always be done continually as the market moves from point to point of operation.
Harrytrader encapsulates the possibilites and scope. S and R bound the market and when they are tested continually you see chop. All other times the market is in transition from one to the other ofthese boundaries.
Time passes for these events and the long term, intermediate term and short term are used to define the action. For example, the long term trend for ES is long (plot the channel). The IT is in it's fourth traverse Leg 4 (long) in the long term channel.
That brings us to your intraday short term needs. Leg 4 defines the daily S and R. chop occurs on these values. When you are not there, there is a trend, sufficient volume permitting.
Trends occur at differing paces. Discerning the pace tells you what to anticipate next after the end of the given trend. What follows is your answer sheet for all the possibilites. With it, you can now go forth.
Fast paced trends (rockets) go to R or S and turn in into a three part sequnce of "chop": congestion, convergence and centering. The sufficiency of volume determines the transition points. Each decline put you into the next part of the succession.
Moderate trends linkwith reversals within the bounds of the S and R. for ES use 10 to 12k as the minimum maintenance volume for these type trends. since they overlap due to linking ,ou reverse at the extreme of the trend prices. Use SCT for this.
Slow trends actually drift on volumes of 4500 to 600 contracts per 5 minutes (All volume references are to the trading fractal the 5 min chart). You make about 1 1/2 to 2 1/2 points per hour on this stuff.
noise trends. Below 4500/5min, noise predominates and you can use all the risk, random walk and chaos stuff to handle this) this is a non trending situation and the requirement to trade is is very somple. You can make about 2 1/2 times the range of noise by trading through the entire duration as a maximum extraction standard.
For all trends you can define heir channels using points 1, 2, and 3, to define the parallel lines of the channel. for all channels but the fast paced count on having to add a new point 3 when the channel sags as it usually does. All bounces off the right trend line are preceded by volume surges to renew the trend. The failure to traverse the channel from rigt to left is the advent of point 1 of the reverse of the trend into the new trend. An action point for making money. This point for fast paced trends mark the time your change from a "continuation" strategy of trading into a "change" strategy for trading chop. This point marks the end of the fast paced trend on S or R and the beginning chop which is traded using a "change" trategy. The simplest change strategy is the IF 1 and IF 2 boolean monitoring along with the APA (Additional Protective Action) single Bollean statement. See "sexY" thread. this is simply staying on the right side of the market. Trading chop on the wrong side is called getting whipsawed. It is like holding a postion in a drawdown to lose money in a disci[plined manner; one of the popular myths of ET.
The above covers all your requests all the time in the market without doing the "predicting thingy".
Highlight the money making words in yellow and after a while blacken out all the other words.
Some logical limitations do exist, however.
Prediction is not possible and, fortunately, it turns out to be unnecessary.
There is a requirement to trade the market in one or the other modes in which it operates. That is a priori. Your ID of these two is necessary and can always be done continually as the market moves from point to point of operation.
Harrytrader encapsulates the possibilites and scope. S and R bound the market and when they are tested continually you see chop. All other times the market is in transition from one to the other ofthese boundaries.
Time passes for these events and the long term, intermediate term and short term are used to define the action. For example, the long term trend for ES is long (plot the channel). The IT is in it's fourth traverse Leg 4 (long) in the long term channel.
That brings us to your intraday short term needs. Leg 4 defines the daily S and R. chop occurs on these values. When you are not there, there is a trend, sufficient volume permitting.
Trends occur at differing paces. Discerning the pace tells you what to anticipate next after the end of the given trend. What follows is your answer sheet for all the possibilites. With it, you can now go forth.
Fast paced trends (rockets) go to R or S and turn in into a three part sequnce of "chop": congestion, convergence and centering. The sufficiency of volume determines the transition points. Each decline put you into the next part of the succession.
Moderate trends linkwith reversals within the bounds of the S and R. for ES use 10 to 12k as the minimum maintenance volume for these type trends. since they overlap due to linking ,ou reverse at the extreme of the trend prices. Use SCT for this.
Slow trends actually drift on volumes of 4500 to 600 contracts per 5 minutes (All volume references are to the trading fractal the 5 min chart). You make about 1 1/2 to 2 1/2 points per hour on this stuff.
noise trends. Below 4500/5min, noise predominates and you can use all the risk, random walk and chaos stuff to handle this) this is a non trending situation and the requirement to trade is is very somple. You can make about 2 1/2 times the range of noise by trading through the entire duration as a maximum extraction standard.
For all trends you can define heir channels using points 1, 2, and 3, to define the parallel lines of the channel. for all channels but the fast paced count on having to add a new point 3 when the channel sags as it usually does. All bounces off the right trend line are preceded by volume surges to renew the trend. The failure to traverse the channel from rigt to left is the advent of point 1 of the reverse of the trend into the new trend. An action point for making money. This point for fast paced trends mark the time your change from a "continuation" strategy of trading into a "change" strategy for trading chop. This point marks the end of the fast paced trend on S or R and the beginning chop which is traded using a "change" trategy. The simplest change strategy is the IF 1 and IF 2 boolean monitoring along with the APA (Additional Protective Action) single Bollean statement. See "sexY" thread. this is simply staying on the right side of the market. Trading chop on the wrong side is called getting whipsawed. It is like holding a postion in a drawdown to lose money in a disci[plined manner; one of the popular myths of ET.
The above covers all your requests all the time in the market without doing the "predicting thingy".
Highlight the money making words in yellow and after a while blacken out all the other words.
This article talks about how the market evolves from trending to range bound conditions. You need a subscription for this.
Breaking the Market Code- Learn to tell the difference between a trending market and a market that's moving sideways.
By Alan Farley Special to RealMoney.com
10/02/2003 12:30 PM
http://www.thestreet.com/p/_rms/rmoney/theswingshift/10116957.html
"You can't make money if you don't know the difference between a stock that's going up or down, and one that's moving sideways. So today we'll look at characteristics that differentiate these two market types. Hopefully, this discussion will keep you from chasing trends that aren't there, or sitting on the sidelines when you should be putting cash to work."
Breaking the Market Code- Learn to tell the difference between a trending market and a market that's moving sideways.
By Alan Farley Special to RealMoney.com
10/02/2003 12:30 PM
http://www.thestreet.com/p/_rms/rmoney/theswingshift/10116957.html
"You can't make money if you don't know the difference between a stock that's going up or down, and one that's moving sideways. So today we'll look at characteristics that differentiate these two market types. Hopefully, this discussion will keep you from chasing trends that aren't there, or sitting on the sidelines when you should be putting cash to work."
It's a holiday weekend, even though the NYSE was open today and will be monday, some of the pits in Chicago were on a 1/2 day Friday and will be closed Monday.
...this surefire method for NQ probably doesn't work on anything else: look at the volume the first minute of the open.
Since you've asked for advice on how to distinguish between trending days and choppy days, I assume that you've been showing poor results attempting to trade chop since trading trend is relatively easy. If so, then perhaps you're trying to apply the wrong strategy to the chop. Breakout and retracement strategies, for example, won't do well in chop, where as test/reversal strategies can do quite well depending on timeframe and range. Therefore, look at the strategies you have at your disposal and see if any of them will work in chop. If they won't, then there isn't much for you to do except stand aside.
As for the distinguishing part, that's pretty simple. If you're making higher highs and higher lows (or lower lows and lower highs), you're in a trend. If you aren't, you aren't. If you know how to draw trendlines, you can do that, though you can also just plot a close-fitting MA such as an exponential 10 and see not only which way it's going, but when and how often price cuts back through it. If price keeps returning to the MA and dropping through it, you're not getting sufficient lift to give yourself a nice cushion.
As to telling when a choppy day may be coming or when a period of low volatility may be ending in a breakout, there's really no way of knowing regardless of all the NR4, NR7, NR9 business. Sometimes a strong trend day will be followed by a thoroughly satisfying continuation. Sometimes it will be completely reversed. Sometimes price will just sit there buffing its nails. Sometimes a narrow-range day will be followed by a big gap in one direction or the other, after which price will do nothing all day. Or you'll get a "creep" day, in which price does progress, but at a snail's pace.
The only answer I've been able to come up with over the years, which has also been the most successful one, is to approach each day as if it were business as usual. I make no assumptions as to what's going to happen. I know what my strategies are expected to do and the conditions under which they do best. If the setups occur, I take them. If they don't, I don't. I did all that testing for a reason, and I let it do what it's supposed to do. Therefore, whether you do well on chop days will depend on the setups you have available to you, how throughly you've tested them, how much you trust them to put you on the correct side of the trade and keep you out of trouble, how much you trust yourself to follow your plan.
As for indicators, you may find some sort of filter useful if you tend to see trends where none exist. One of the most widely used is the ADX/DMI. You may decide, for example, not to take a breakout if the ADX is in a serious downturn. One filter like this can prevent you from taking a considerable number of ill-conceived trades, all of which can erode your self-confidence. On the other hand, you're not required to use indicators at all if you know how to interpret price-volume relationships.