Choppy versus Trending

As you smile proudly basking in the self-congratulatory glow of the cleverness of your post, try not to recognize the belittling early life events and the adolescent needs underlying your resentment of older male authority figures.

 

The OP asks a question that gets to one of the fundamental tenets of good trading and not one good answer was provided (including those of J.W.'s - which I must admit I found difficult to read past the first blathering paragraph).

What if the market made higher highs and higher lows all day? Trending or choppy? What if I told you that the daily range was in the lowest 5th percentile? Would your answer change? How would your answer change if you traded a 1 minute, 5-minute or 15-minute chart.

I have a plan to trade one of the numerous market profiles that can occur on any given day with my chosen setups. I don't need umpteen setups . . . I just need to know how my setups should be applied to the umpteen different market characteristics. Doesn't always result in a trade.

Some days the market trends strongly . . .and it's obvious. Some days the market chops around . . . and it's obvious. And most days it does a whole host of things in between.

Check your timeframe, check your daily range, check your opening range, check your internals, check your price action, check your risk profile, check your pivot location, check your key numbers from yesterdayt, ask your mom. Answer is not black and white . . . and not always easy. But if you don't have the answer each and every day with confidence to effect discipline, you won't be asking the quetion for many more of them.

Keep trading.

J.Scott

 

Yeah I'll do that and try and ignore the amatuer hour psychology too

 

Thanks for the response.

 

What a gracious poster you are, abattia. Nice of you to thank everyone for their input. Tell me (if it's not premature), out of the many wildly disparate points of view recorded in this thread, does any particular approach, or any synthesis thereof, seem viable for your trading?

Thanks again for starting this vibrant thread, and thanks to all the posters for their contributions.

Steven

 

If you are being chopped, then market is choppy

 

Apologies for being slow to respond ...

I’m very grateful for all the input received.

I’m almost a year now into starting out full time in automated trading. The initial trading style I’m focused on honing is sentiment-oriented technical trader (i.e. parasitic order-anticipating speculator, see Larry Harris’s Trader Taxonomy ). Hopefully, I am by now a few steps along from “fledgling” in the direction of the target trading style... My focus currently is intraday trading of ETFs (I judge it’s a little bit harder with ETFs to lose one’s shirt quickly); single company stocks and FX are next (intraday and swing); and then futures (intraday), that is if I can convince myself first of all that trading futures is not a mugs’ game...

I want to run before I can walk; and so I’m not being “original” in terms of the set-ups/strategies I try out, focusing on stuff I read about that seems consistent with the trading style (i.e. I am building my own experience on the shoulders of giants, so to speak ...). Currently, I have two instrument/strategy combinations running automated and “live”, and another two running in forward-testing mode (in simulation). So it’s still early days...

To my understanding, “sentiment-oriented technical trading” means seeking to understand what the “trader masses” are doing and thinking (in order to identify opportunities to anticipate the next move with some probability) (NB - obviously, I wouldn’t dream of referring to my illustrious ET colleagues as members of the “trader masses”; I am, of course, referring to everybody else, not to them ...).

Support and resistance levels, as they appear on a price chart, appear to disclose much about the doing and thinking of the “trader masses” ... One of the current strategies I am coding is based around intraday support and resistance levels; when between two S/R levels, the concept is to “go with” any breakout from these levels (i.e. “market is trending”), but to fade moves to these levels if the market is “choppy” ...

[BTW, from the responses to my original post I learned that “choppy” is sometimes defined as “market fluctuations that cannot be traded”... this is not how I meant it; I guess what I meant was a price that bounces within S/R levels, rather than one that cuts through them; but within that “choppy” structure there may be “micro-trends” that can still be traded. I apologize for any confusion caused by my original lack of precision ...]

Based on the responses, it seems it’s easier programmatically to determine the market is probably trending (e.g. just wait for the breakout!), but harder to establish programmatically that the market is “choppy” (in which the correct course of action – at least under the strategy I am currently looking at - would be to place a limit order to fade moves to the level above/below).

Of the suggestions received, I am going to focus first on ADX (thank you, “efficiency”). I am going to investigate what sort of backtested results I get by associating a “choppy” market with say “an ADX reading below N over timeframe 1 and an ADX reading below N’ over timeframe 2”. Obviously, ADX is an “indicator” that will lag price action, but perhaps I can get a good enough “choppy filter” for my purposes ...

Any thoughts on this approach?

PS - I know that “chop” can become “trend” (and vice versa) at any time ...

 

This is just a brief comment of what jumped out at me from your response to the question.

I do not share your views on how to take what is available and get a result that fits with the taxonomy box you picked. I found myself in the same box once the box was announced.

My response is not methodical it is just a set of comments.

Support and Resistance is more what the masses won't do than anything else.

Going from one to the other is more what the masses do.

There is no difference in leading them or following them. It is like choosing a passenger seat; everyone gets there.

You may wish to devote some time to the value of anticipating the turns away from R and S as that is what price movement is often doing as an expression of trending. The market often moves to R or S and finds it.

Now I will turn to Larry Harris and in particular to the words he used in the box. He used sentiment rather than R and S which are your choices.

Some sentiments are "accumulation" and "distribution". Others are Bull and Bear. For each of these, it may be that nothing is being challenged, instead each may be a condition.

I am parasitic to these kinds of things, for example.

My focus is to be in the market. The limit is all the time. Since I am parasitic, I stay on the right side of the market. This is NOT a up down R or S orientation. It is a left/right orientation.

Bull or Bear move in the same direction. So do accumulation or distribution. For all four it is one direction: from right to left. This is a direction assignable to the masses as they move. It is the Dominant direction of price movement for a given sentiment.

Lets say you do not know this. If you do not, then you are at choice. the choice is to accept or ignore.

Larry made the box for people who accept this. They measure the dominant moves of the masses. What do they do in between? they measure the non dominant moves of the masses.

Some parasites only deal with half of the movements because they are biased. Contrarians is a name given to folks who focus on non dominant market aspects.

To capitalize on all the parasitic opportunities a person has to be non biased and trade both dominant and non dominant moves. Chop has both as does trending.

Non dominant movement is from the left to the right.

Each are measured using the leading indicator of price.

The anticipatory aspect of the parasitic technically oriented trader is best explained by looking at how that trader differentiates between a retrace and a reversal. Knowing the difference at the very very beginning of each is where the anticipatory word comes from. You are stating you do not know this stuff.

The masses give "tells" when they begin to retrace or reverse. the sentiment is the same for the masses; it is a non dominant period to begin with. In both cases neither R nor S will be breached.

The non parasitic non anticipatory trader falls into the category of Covel: trend following. As he states he doesn't know if a trend is underway for quite a while.

You, on the other hand, are going to become an analyist and you will someday have tools that extend your outreach.

Nothing in your plan that you are doing puts you in the box you assigned to yourself. You have the up/down orientation; that has to be left behind.
you have no measure of left or right. Sentiment is measurable using movement: the movement is one direction, right to left.

Will you replace R and S (the top and bottom) with the right and left containers? Each is called a trend line. Some people are not slow or fast; they are halffast. DBPhoenix was an example; he would only use RTL's and not use LTL's.

Lets say you learned to see BO's of RTL's and LTL's. The BO of a RTL ends the overlap of trends. What begins the overlap? These are topics of parasitic anticipatory technical traders. What is the convention for handling a BO of an LTL? It is called a VE. The VE either requires handling or it does not. If their is a rate of change of volatility in one direction there must be a measure in the opposite direction. Of the nine cass of the relative aspects of adjacent bars, six of them deal with declining volatility. This is a door you have not seen on the wall you are facing.

Both types of BO's turn out to be dominant in nature. You may find that to be surprising. BUT you do look at BO's of R or S as dominant. What is the failure of BO of R and S called? Linda does the 1, 2, 3. Why?

How does the anticipatory technical trader take advantage of the always occurring overlap between an old trend and the new trend?

Why is chop missing in the Larry Harris box you have assigned to yourself?

Why aren't there fractal relationships in R/S type vertical orientations? Why do fractal relationships only occur in the left/right dominant/non dominant orientation?

Most people choose to reject the horizontal and keep their eyes on the vertical orientation that you have had for quite a while. So it goes.

 

Your post is very deep and the product of significant reflection and experience with the markets. However, I have yet to find any measure of S and R that demonstrates the above quoted claim with any tradable consistency. Maybe I don't have the right tools, but identifying support and resistance to an actionable degree actually seems harder to me than identifying when a trend is on and taking a position accordingly.

 

Thanks, Jack. Food for further thought ...