Trading in choppy markets.

Discussion in 'Trading' started by William, Aug 10, 2002.

  1. William

    William

    I’m interested in hearing your theories, strategies and insights on trading choppy markets. (Besides the obvious scalping and staying out completely)
     
  2. You answered yourself...stay out completely or scalp for quarters!
     
  3. William

    William

    I've heard a lot about shorting on resistance and buying on support... but if you do that were would you place your stop?
     
  4. NDQnCA

    NDQnCA Guest

    you have much to learn, grasshopper :D

    usually give it around 35 cents- thats about what i use but it all depends on the size you have on and your pain threshold, etc- but the important thing is not to ever have those trades that wreck your entire day- if you have a bad trade, stick to your discipline, suck it up and realize the loss, get out before it turns really bad. climbing out of holes is shittay- avoid it at all costs-
     
  5. It seems to me that you only recognize a "choppy" market after the fact. The chop begins as consolidation in a trending market. At what point do you decide you're in a "choppy" market? Thirty minutes of "chop" is a short consolidation period on a 60 minute chart. The general take is that you use moving averages in a trending market and switch to oscillators in a choppy market but no one explains how to identify which type of market your in or when to switch. I just watch for my setups without worrying about what kind of market Im in. I think it is a mistake to try and come up with a setup for every situation.
     
  6. mfitch57

    mfitch57

    In a choppy market, if the market or a particular stock is
    trading in a range, one of my favorite indicators is the slow
    stochastics. So, if a stock is bouncing between 20 and 30, when
    it gets to 30, you will notice the stochastics are "overbought",
    meaning over 75 or 80, depending on what chart service you use.
    Likewise, when the stock gets back down to 20 (support) you'll
    see the slow stochastics under 25 or 20 (oversold). Wait for
    confirmation that the oversold stock is heading back up, then
    buy. For this kind of trade, whether short or long, the stop
    should be placed just below the low of the swing low when going
    long (just above the hi of the swing hi when shorting).

    One other thing I'm trying to do is have the market at my
    back. If the market is at support, starting to move up, I would
    look for those perfect set ups to go long, and vice versa.

    I would love to hear what others here think about your
    question. Best of luck to you.
     
  7. mfitch57

    mfitch57

    In a choppy market, if the market or a particular stock is
    trading in a range, one of my favorite indicators is the slow
    stochastics. So, if a stock is bouncing between 20 and 30, when
    it gets to 30, you will notice the stochastics are "overbought",
    meaning over 75 or 80, depending on what chart service you use.
    Likewise, when the stock gets back down to 20 (support) you'll
    see the slow stochastics under 25 or 20 (oversold). Wait for
    confirmation that the oversold stock is heading back up, then
    buy. For this kind of trade, whether short or long, the stop
    should be placed just below the low of the swing low when going
    long (just above the hi of the swing hi when shorting).

    One other thing I'm trying to do is have the market at my
    back. If the market is at support, starting to move up, I would
    look for those perfect set ups to go long, and vice versa.

    I would love to hear what others here think about your
    question. Best of luck to you.
     
  8. On such trades, you are playing S/R to HOLD. If breaks, your play is wrong. The purpose of the stop is not only for capital preservation, but also a "noise containment buffer"... to filter out the small, false break prick through S/R.

    In other words, "a little beyond", depending on the volatility of your issue. "A little" is arbitrary, as are all stops.

    For a stock, no more than "1/2 normal noise oscillation range".... probably no more than 8%. For an SP futures, my preferred vehicle, I go for 1%.
     
  9. scalping for quarters is real good right now

    you can only get so much out of the market at times, why question that, just accept that
     
  10. William

    William

    Thanks for your posts everyone, I appreciate them all.

    NDQnCA,

    Okay, just want to clarify – say the market is in a messy range, my stock is very near the low of that range, I then go long. Now as long as it doesn’t break that range by more then thirty-five cents or so I shouldn’t take the stop? This is what I was thinking also, but it sounded too crazy to be true =) I was also thinking that I might be able to use some chart resistance (or support, as the case might be) from a day or two back to place my stop. What do you think about this?

    easyrider,

    I know what you mean here, it’s very difficult to tell chop from trend early on, I find. I am more of a tape reading guy, so in my trading my definition of a trend is higher highs, higher low. The fact is we both have our ways of dealing with chop or trend. I have no idea how to tell until it is oblivious. Usually, since I trade Nasdaq stocks, I’ll watch the NDX, if after two reversals it looks like an expanding range day, then I’ll think chop and switch to scalping.

    mfitch57,

    This seems right, to wait for the stock to make a reversal off it’s support/resistance. I think it is interesting that you and NDQnCA different strategies. Maybe it is the difference between an aggressive entry and a “wait for signal” kind of entry?
    When you say ‘confirmation that the stock the stock is heading back up’ what exactly do you use for a confirmation?

    gnome,

    Actually I find on choppy days that the market just becomes and expanding range – breakouts/downs being slightly broken, then aggressively faded. But what I am looking at is an intraday chart as a whole… maybe you’re more micro than I? Also, when you’re looking for S/R to hold, do you give it room and how much? Such as NDQnCA gives his trade about 25 cents of room.

    Lord Byron,

    Right. I agree scalping in the only way to go it a choppy market, if you’re going to trade it at all.

    Wow, so it kind of looks like everyone has there own unique strategies- makes perfect sense. I’m more of a trend trader shorting weakness, and buying strength, I wonder what will work best for me.
     
    #10     Aug 11, 2002