How to Avoid Getting Whipsawed in Chop?

Discussion in 'Risk Management' started by macattack, Dec 13, 2012.

  1. Anybody ever have a problem getting caught in chop & falling for one trap trade after another?

    If so I was curious if you had any insight on how to recognize it & avoid it.

    I always start off by asking myself if the direction of price is up or down. Pretty simple.

    But...........time after time............when price starts to chop I don't notice it.

    I'll start missing the forest for the trees.

    I'll see the tiny, meaningless breakouts within the chop, & since price is now going up, I'll get long.

    Then I'll get trapped & lose, & see that price is now going down, so I'll jump in short...............just in time to get trapped again.

    Then I figure ok............I got trapped twice, but here comes the real breakout & a reversal back up, so I'll jump back in long, because I sure don't want to miss the bus after getting trapped and stopped out twice.

    So then of course I get stopped out again.

    Now I'm down significantly, screwed up in the head, & price hasn't even moved. :(

    I keep thinking I won't fall for this next time, but then sure enough I fall for it again. It's like my brain completely forgets how to recognize the chop zone a few days after I have one of these episodes.
  2. It could be a good idea for you to join some sort of a room with experienced traders.To trade for a while under the mentorship.
  3. It is like being in the jungle of Brazil (not a Brazilian woman, she should wax). What did I do when I went to Brazil with my woman? Well, first I got her drunk and ditched her at the bar so I could score some local tail because...come on, brazilian booty is bangin'. After playing slip and slide at the rodeo, I felt bad about it so I decided to take my girl out to the JUNGLE to explore this so called rain forest and smoke a little cheeba. Let me tell you my mang. I got lost. Turned around every which way but loose if ya know what I mean. I thought this way was north then I thought that way was south. Lordy. I had to smoke just to calm myself down and find my way out and keep my girl safe (apple of my eye and all). I went back to that same bar and know what? Sat there, got some Cachaça and stared at brown ladies all night. Then the next day I got tour guide; that home boy took us straight to some ruins right out of Romancing the Stone! Jesus, I thought I was gonna find crystal skulls or at least a cure for cancer. Come to find out we didn't discover a new temple, but still got my pants tight with excitement (and the tour guide didn't mind the occasional bump of good blow either).

    When my daddy was in Brazil I was just a little tyke:

    So what is the secret to the JUNGLE? You having trouble click-clackin' the button on your mouse? Heart beats hard with the thought of getting long? Roll that finger back in your hand, stand up from the desk, and go stare at brown booty. Maybe smoke a spliff, maybe have a drink, maybe just rub one out to Bartiromo. Give yourself a cut off time for the morning session and a time to come back into the market. Don't get chopped up like a weiner at a currywurst stand in east Berlin. Gotta get your head right, nam'sayin'?

  4. yes only trade from one side. I don't care what they tell you, that whipsaw is the most psychologically damaging. Better to give up a few dollars to save your mind.

    when you trade from one side only it is a lot easier to stay focused on your entry

    for instance, if you are bull, all you are ever looking for is a good place to buy

    when good sell signals come up let them go, they don't belong to you

    no matter how short a time frame you trade, pick a longer indicator and try to determine which side looks best, then only take the setups from that side
  5. It is pretty simple. Because these are your only choices, it is not possible for you to detect "chop."

    Try starting off by asking yourself if the market is in "chop" or "not chop." It might help.
  6. sheda


    Multi time frames and a check list of question to assess whats happening infront of you.
  7. Some good ideas...........thanks !

    (not too sure about the brown booty idea, but you never know) :)
  8. NoDoji


    My warning signal is a flat 20EMA in my main trading time frame.

    When you say "meaningless breakout", you're describing a breakout of nothing important, hence the "trap" potential. In order for a breakout to have a better than even chance of success, you need to have a good number of trapped traders in place. Two price patterns can trap a sufficient number of traders on the wrong side to fuel a decent breakout:

    1. Narrow range consolidation following a strong directional move

    2. Pullback in a well-defined trend followed by a move back through the last new high/low.

    Narrow range consolidation can be a narrow channel pullback, a narrow range "flag", a descending/ascending triangle. These formations following a strong directional move are excellent traps because inexperienced counter-trend traders perceive these patterns as a sure sign of a reversal. More often than not, price will break out in the direction of the previous move and very often run a distance equal to the previous move (measured move).

    A breakout of the high or low of a wide range will more often than not fail, and will often drift back to the other extreme of the range. I find it best to see if the first break out of a wide range results in some follow through, then I may position in the direction of the break on a pullback.

    In a well-defined trend, where price doesn't break and close on the other side of the 20EMA (thereby flattening it), if you're not already positioned during the pullback (which is the move that attracted all the counter-trend traders), then you can trade a breakout (buy stop or sell stop just outside the HOD/LOD) with success more often than not.

    I avoid symmetrical triangle breakouts.
    Datum likes this.
  9. NoDoji


    This is what I use as well.
  10. These days, when I am trading which ain't much with PA per Bubble Ben, I use the market profile numbers for S/R and notice whether their ranges are tight or just coming off of expansion. A coiled market is going to break out, the majority of times. A market that just expanded is going to contract or chop sideways. Start there, before the market opens and get a feel for a narrow range market or trending/expanding. You can also use Crabel's NR4 and NR7 to give you an indication of whether the market should break out.

    But alas until the fiscal cliff is solved expect more of this shit. Bubble Ben drives the current market along with the musings of any idiot in DC. Until you accept that, TA will continue to screw with you head.
    #10     Dec 13, 2012