Help, I've been chopped!

Discussion in 'Trading' started by NoDoji, Aug 12, 2013.

  1. NoDoji

    NoDoji

    Have you experienced the "death by a thousand cuts" that comes from trading in "chop"?

    Are you confused about how to know when price is setting up for a potential mess of chop/range/"barb wire"?

    If so, I have some good news: The doctor is in!

    Post your charts and the trades where you got "chopped" and if any of my favorite anti-chop price action concepts apply to your situation, I'll share my tips for avoiding the blades of destruction :cool:
     
  2. I did not make these trades, but what would have been your
    warnings signs not to take them?
     
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  3. DTB2

    DTB2

    For me, I would have been hesitant given the time of day and there already was a nice up and down run. I would expect a bit of distribution after that.

    Looking forward to more posts on the topic.
     
  4. jack411

    jack411

    Here's a trade from today. I was +7 ticks at one point but was holding for a larger target as the lows had been taken out, and I thought the bottom was in. I ended up -8 ticks.

    My biggest issue when it comes to "chop" is moving my stop. There would have been plenty of times my target would have been hit on a trade like this, or I would have moved my stop up at least a few ticks. This specific time I didn't as I was looking for a larger move.

    I've read previous posts you made where you talk about a lot of scratch trades. When do you prefer to move your stop to breakeven? How many ticks in your favor do you wait for, and is this a number that you backtested for your specific market or does it depend more on actual price action signals?

    edit: After looking at the chart again I see that I should have used the downsloping channel. I've always noticed this with triangles, but recognizing in real time has always been the challenge. It's similar to what Brooks refers to as a "trendline channel overshoot". Or something like that lol. I would still like to see your explanation though and how you may have handled the PA at the time.
     
  5. NoDoji

    NoDoji

    Notice the slightly lower high that set up the 1-2-3 reversal off the opening high. The price levels where counter-trend traders shorted via sell stops becomes a potential defensive zone of resistance if price comes back to that area. The entry at the first green arrow needs to lead price up to clear that zone before a test of the opening high can occur. If price fails to clear that level, I'd scratch the trade if price broke the little support shelf just above my long entry. Why risk a larger loss (a test of, and possible breakdown of, the previous swing low), when there's no trend in play? I can take a tiny loss and wait for clarity.

    I don't see anything signaling at the red arrow.

    The second green arrow sets up two reasons for a long trade: 1) The apparent failed break of that internal double top resistance will have attracted early shorts, and 2) price stopped falling at your blue line of "previous R becomes potential S". If price moves back up and breaks the pullback bar's high, the momentum is likely to continue at least far enough to run all the early counter-trend traders' stops. This means there's "airspace" to work with, allowing you to scratch the trade if there's a second failure.

    [​IMG]
     
  6. NoDoji

    NoDoji

    When I trade in an environment where a defined trend isn't apparent I'm always prepared for potential chop. I look for "airspace" to work with (I avoid "congestion", which is when defensive levels of both longs and shorts are very close). So in a non-trending environment, I'm prepared to scratch any trade in which price fails to clear a key level in line to be tested (and possibly defended).

    In your example, there's a strong trend apparent, though we have "shrinking stairs" meaning slowing with-trend momentum, and so a possible trend reversal off the higher low setup.

    Although it's a decent counter-trend setup, always keep the phrase "think continuation" in the back of your mind and know in advance of putting on the trade where you're likely to run into trend-followers' defensive zones.

    On your chart, two defensive levels are very close to each other: 1) the level where trend-following shorts earlier positioned via their sell stops and, 2) a parallel upper channel line indicating a common resistance level in a potential "bear flag" pullback channel.

    As a scalper, I'd have looked to lock in a profit when price failed to clear those levels. Worst case, I'd scratch the trade near break even when the momentum fizzled on the next pullback to the lower trend line.

    [​IMG]
     
  7. NoDoji

    NoDoji

    I have a great list of "chop warning" signs I'll post later, and will also explain more about my concepts of airspace and congestion.
     
  8. Looking forward to the future posts NoDoji.
     
  9. bighog

    bighog Guest

    Nod...........I do not know what support level in NQ is (I should but I do not trade it) but in ES 1680 was golden again today.

    The steep drop off the open was at an angle that was not going to last, that was a givin.

    The question therefore was: Will we settle down a bit to a more normal 45 degree trendline? Will we go into a sideways consolidation? Will we get a decent retrace to reenter after booking those sweet early BOOM-BOOM profits?

    There was no looking for a reversal because once in a sweet trend we do not think reversal until: price stalls and bases for awhile if a non-V type reversal is in the mix for today. Once we see a basing for about an hour we start to give thoughts that a reversal just might be in the cards..........WHEN, we see price stall out at a well defined support level like 1680.00 we must be ready to change gears if said support holds.

    A basing area usually wastes 3 to 4 handles of basing "chop" before we GET the signal we are looking for to take a swing at the pitch being delivered to our bat.

    I agree, it is tough to wade through 3 to 4 handles of potential profit in a quest for "THE" signal we need to pull the trigger. But that places the odds for a successful trade in our camp better.

    You were always the trader that got in before I did, HA!! LOL

    PS: anytime you see 10 handles down then up you will see a "U" illustration of the 20 ema ( not needed but is good for a quick glance to determine trend), when you see the "U" either up or down it pays to study the reversal action. Top reversals are not as easy as bottom reversals.
     
  10. NoDoji

    NoDoji

    This is real important stuff, IMHO. Patience is what keeps us from trying to make something (profit) out of nothing (chop/consolidation).

    I think it's especially difficult for day traders when nothing is setting up in a way that fits our plan, yet price is moving and a nagging fear starts in...if we don't trade something here soon we're going to end up penniless, LOL!

    Then there's the fear that if we don't get positioned the way we think price is going to break out, we're going to miss the entire move (fear of missing out or "FOMO"), and a similar situation where we're so sure we know which way price is going to break that we need to get in right now so we get the best possible price (same fear that drives counter-trend bottom and top picking obsessions), instead of waiting for the price action to tell us who wants it more, then joining that team when it's got a winning run started.

    I'm no longer afraid to miss the first big push of a breakout or a new trend. I know that once that first momentum run happens, there's now a clear winning side and a clear losing side (the antithesis of "chop"), and the market can be ruthless when a group of traders who can't take a hint are now trapped, hoping and praying. I want that winning side to have my back; I don't need to be the trailblazer because I'm trading small size. I can just latch on and get a free ride if I'm patient.
     
    #10     Aug 13, 2013
    Hooti, sumeet666 and wartrace like this.