Conquering the Choppy Market Beast

Mark Twain said, “There is nothing more uncommon than common sense.”

I can’t help but think of that statement when I see how some traders approach the market, in particular to their expectations of what the market should yield on any given day.

I recently spoke with a prospective customer who opened the conversation with this statement:  “I’m just looking for an indicator that will warn me before a choppy market happens and tell me when it’s over.”

I wanted to say to him… “Yes, we have that. It costs 1 Billion dollars per license. How many would you like?”  😉

Now, don’t get me wrong, I’m all for being optimistic; however it is unreasonable to assume that the market will “give” you a tradeable session every day.

Not all sessions are created equal. Some days the market will trend like a rocket and others it won’t go anywhere. It’s those non-trending days that seem to cause all the problems. Yet, people try to “force” the market to give them a profit, and they usually end up only getting losses in return.

As a trader, it’s important that you realize some days will be a choppy market and not have any follow through. You need to be able to recognize those days and be prepared to either trade carefully or avoid them altogether.

Using a Trading System in a Choppy Market

But, let’s be clear here. No trading system, no matter how good, can PREDICT the beginning and end of a choppy market session.

We have a tool that gets close.  But, when it comes to a trading system, the most you should expect is one that quickly warns you when you’re in choppy market conditions and then identifies suitable trading opportunities once the rough market conditions have subsided.  

In fact, when I shared the previous conversation with Erich, our lead instructor, here was his response:

“I always tell people that when the Hawk [part of the DTS system] starts printing a lot of yellow bars that the market is moving into chop and when we get one of our high probability signals the market is moving out of chop.” 

A choppy market, by definition, has little or no follow through. So unless you’re on the exchange floor, scalping for quarter points, you probably have little hope of making a consistent profit during that period.

A choppy day’s trading usually goes something like this:

• You get a good signal, take it and the market immediately reverses and stops you out for a loss.

• You get another good signal; you take it, the market moves towards your profit target, but before finding your target, stalls and reverses on you for a loss.

• You’re getting annoyed with the “bad” signals, so you pass on the next signal, of course, this is the one that does work out, but you missed it. In hindsight, you come to realize that this was probably the move of the day, but you don’t know that yet so….

• You take the next signal only to have it fail again. Now you’re thoroughly annoyed and tempted to “revenge” trade to get even with the market, which only leads to more losses and more frustration until the session finally ends.

The real danger of trying to make a choppy market give you something it’s not prepared to give is that it leads to a series of losing trades, increased frustration, and the tendency to overtrade, which could potentially damage your account.

I had a trading friend who used to refer to these sessions as the “abattoir”, which means “slaughterhouse.” He said that is exactly what happens to anyone who tries to trade an uncertain market, they get slaughtered. I think he is right.

So don’t be like the other traders rushing into the slaughterhouse to get butchered. If the market is acting choppy, Use the right tools to realize it’s going to be a stressful day and take steps to protect yourself and your account. Use your common sense. It doesn’t have to be that uncommon.

Join us every Wednesday, even if it’s choppy, in our Trade Room.  Click HERE to Register.