How to identify Choppy days

[Scataphagos]

does anyone have advice on how to identify choppy days on futures (I trade the NQ) as it is happening? I do great on a trend day like yesterday, but I get chopped up with losses on days like today. If I could make a determination that the range is going to be limited, then I could just scalp trades vs. looking for runners.

I have played with ATR and MACD,,, but do not have anything conclusive

ATR and MACD.... poor tools for trading.

It's "chop" when the amplitude is too small and the frequency of direction change is too great so that you feel you can't trade it. In that case, "buy bottom the range, sell the top of the range"....presume all in between is untradable noise to be ignored.

Chop usually doesn't last very long.... soon to be followed by a breakout, one way or the other. Be ready.

While some of the action actually is untradable chop.... you'll find as you get better and more experienced that some action you used to think of as chop is tradable.

 

[volpri]

Your chart shows an easy chop day. You said it "the quote crossed the sma at least 20 times. That is a trading range day. A day for scalping. There is only one time that price was significantly above the sma and that started around 16:30 and lasted just a abit but prior to that price was dipping down below the sma. When I say above I mean the entire bar staying above not just a data point. For hours it was meandering aroiund above and below. Big confusion nothing clear. A sure sign of trading range. I only scalp in such a senario not trend trade simply because that is the only feasible option. That is what he was asking for. When do you scalp and not trend trade?

All I am saying is the 50 sma helps one see the with a glance if the intermediate trend is up or down and then one can use whatever strategies one uses for the day the market is giving. I am not saying take a long position if price is above the sma. The sma is ONE slice of data to consider whether to lean towards using long techniques or shorting techniques. It is NOT a signal for entry or exit. In addition, I said you have to correlate that with the other price action data.

So, if you think I was saying take a long position when price is above the 50 sma then you misunderstood me. I simply said it was more "conducive" to long trades.

If there is confusion "in my mind" about whether price is trending or ranging and it is not clear then I use strategies for trading ranges because it is best to default to ranging behavior. I am not a trend trader nor a range trader. I trade whatever the market gives me. It writes my plan.

If I had gone long at 16:30 any uptrend would be suspect as price just broke above the sma and had not shown any sustainability. Once it moved up and showed me a range forming above the sma then I am out of my position, if I had taken one, and I wait to see what happens next. I understand the market can, and many times will do, the exact opposite of what I think it will do. So, if I think a trend may be starting and I take a position I am quite willingly to throw the idea in the garbage can and scalp out of my position if the market shows me otherwise. I am just not gonna hang onto it because I "thought" a trend was starting and because price traded above the 50 sma. Between 16:30 and 18:00 it was obvious we were probally going to have a trading range session. So that is when I would use scalping technique if the range is broad enough. And I would not look at the 50 sma as any useful data as it is a trading range day and price is meandering back and forth above it and below it with no sustainability on either side.

 

[volpri]

ATR and MACD.... poor tools for trading.

It's "chop" when the amplitude is too small and the frequency of direction change is too great so that you feel you can't trade it. In that case, "buy bottom the range, sell the top of the range"....presume all in between is untradable noise to be ignored.

Chop usually doesn't last very long.... soon to be followed by a breakout, one way or the other. Be ready.

Correct. when there is confusion in a traders mind. Up or down then it is probally trading range behavior and time to look at trading it that way. And of course a BO usually comes then strategies are different for that senario. A trader has to play the hand they are dealt. I would beg to differ on the untradeable noise as I don't believe there is any noise. Every tick move is for a reason and tells a story. Not that every tick is to be traded but very often bull and bearish patterns can be traded within a range if the range is broad enough. dialing down to a smaller TF can help.

 

[schweiz]

So, if you think I was saying take a long position when price is above the 50 sma then you misunderstood me. I simply said it was more "conducive" to long trades.

Yes, I misunderstood you.

 

[volpri]

Here are two viewpoints for today. one from the perspective of the pre RTH chart and one with RTH chart. Notice the gray 50 sma on both charts and the time scale. And notice the PA context. so what do you think?

 

[volpri]

here is a larger view of overnight session. bull channels are functionally the same as bear flags. BO is usually south. tight micro channels within bull channel. measure move up. wedge top three pushes up . smaller bars at top. prob good for at least a scalp down. still trading above the 50 ema on overnight chart. bearish on RTH chart. who will win? unknown at the moment. but patterns for scalping both directions.

 

[volpri]

RTH again. If we get a bear bar followed by another bar with a LL then we will probably get at least a measured move down. Enough for a scalp. Notice gap from top of pb to BO point . this is bearish. however at this point it only means 60% chance of a measured move south. 40% it can go north. so I play whatever I am dealt and can change on a short notice if the markets does so.

 

[volpri]

I have to go. we will see how it plays out. still no signal to take a position. just context.

 

[tommcginnis]

"Playing with" the ATR is 100% right on target. To the degree it is useful, MACD is better suited to trends. "Play with" the ADX/DMIs, and note well when/whether the ADX above 25.

(That's the very, very short version...)

 

[wrbtrader]

does anyone have advice on how to identify choppy days on futures (I trade the NQ) as it is happening? I do great on a trend day like yesterday, but I get chopped up with losses on days like today. If I could make a determination that the range is going to be limited, then I could just scalp trades vs. looking for runners.

I have played with ATR and MACD,,, but do not have anything conclusive

You should post a chart of that chop you're talking about that generated trade signals for you when you were using ATR and MACD. Don't misunderstand, I'm not talking about hindsight charts...I'm talking about charts as it looked like on your monitors when you were trading that price action in Emini NQ that you call chop !!!

Yet, I think its odd your choice of words like "I played with" to imply you didn't even backtested it prior to using it. Seriously, had you backtested it and simulate traded your use of ATR / MACD...you wouldn't be using words like "I played with" for your real money trades because you'll know that those losses were just part of your statistics.

Anyways, your charts (not someone's else) of those losing trades that you say occurred during chop will explain a ton of info for someone to properly help you.

There's an old thread about trading in chop and recognizing it...very useful. It talked about hints, clues or price action identification of chop versus trends like you mention occured the other day when price action had an obvious trend or strong continuation like movement.

You said something else that's odd...if you could recognize chop you would then scalp the price action instead of looking for runners. That implies you would change your trade management. Maybe the problem is more than your ability to recognize chop ???

Thus, your trade management (exits, profit targets, stop placements, trailing stops) is problematic. Seriously, if you can't determine the difference between yesterday versus today...maybe the difference is when you were trading versus when you were trading today ???

Once again, just an educated guess because there's no charts by you to show when you took those trades today versus when you took your trades yesterday because both days had chop and both days had trend like price action whereas yesterday had more volatility that produce strong price movements Up & Down while today had less volatility. That's a hint right there from that old thread here at ET where people posted chart examples that were having problems with recognizing chop as it was occurring allowing them to change from trend trading to chop trading (or stay on the sidelines).

Another hint...statistically there's more chop than trend from month to month while trading the Emini futures. Therefore, based upon what you're saying...statistically you must be having problems trading on most trading days except for trading days like yesterday. If not, that would be very odd and you would then need to explore why today's chop is different (not a good performance for you) versus other choppy days considering statistically there's more chop than trend.

That's the main reason why I mention the "when" you're trading to see if you're trading different times from one trading day to the next trading day.

The answers (solutions) is in your own charts.

wrbtrader