In this video, we're going to take a look at choppy markets and how to deal with them really so a choppy
market is something that you should be very comfortable with because quite frankly, it's the norm 80
percent of the time, 75 percent dependent on the instrument markets are doing this as opposed to this.
Now, you notice I'm on a five minute chart, so I'll go ahead and zoom out.
This is more of a day trading thing, but it can apply to longer term charts as well.
But a day trader is.
By their very nature, going to be hyperactive as far as trades are concerned.
So there are a couple of indicators that you can use to perhaps help.
One would be the stochastic oscillator, and this indicator measures when something is ever bought or
sold.
Ultimately, you want to define where support resistance may be.
And simply trade back and forth.
However, one thing that I would point out is that you almost always have.
A prevailing trend ahead of time, most of the time, the expression is consolidation leads to continuation.
So.
The way that I deal with this is I will take a sarcastic oscillator, you know, once we start forming
and there should have been support there, there was a gap.
Once we get this.
It's a classic cross, the moving averages cross underneath.
In this case, the 20, which is the oversold you're looking to buy, and once you get into overbought
and cross, which is above 80, you're looking to sell.
Now, here's the thing.
The longer term trend in this case was up.
So you're going to have much more luck buying.
So how do you manage that?
Well, if you really must trade in both directions and quite frankly, I don't recommend it, I recommend
just looking for support and going to the longer term.
Trend, because eventually you break out of this, but leaving that alone, if you feel that you ultimately
must do this.
A simple trick that I have used for money management has helped me over the longer term, so I take
this to Karthick Oscillator.
I use that as a signal.
On with trend trades, I risk a whole unit, so.
Whatever that is, you know, let's just say I risk one percent of my account.
Not with trend.
I was, but not with her in here, I'll risk.
A half a percent.
So what happens?
This gives us the opportunity to perhaps walk out of here.
With a little bit more clarity, you can see that we board here, we hit resistance, got oversold.
So at that point you've got a one percent trade that worked out.
But watch what happens.
You know, you're half a percent goes against you.
So, you know, now you're down.
To only a half a unit.
Of profit, and it's actually not even quite that, it's more like 45 percent.
You get an oversold condition just above support.
And you could have closed out there for an entire move.
So then you're at one and a half trades units, if you will.
So you've made money by going with the trend.
Had you shorted here, not ahead of the resistance, that would have been a loser and you'd be covering
your trade.
A couple rules are this.
If you get the think about trading choppy markets like this, if it proves you wrong.
So, for example, you shorted right here and it gapped up there, get out.
You absolutely must get out, because a lot of times these can lead to much bigger moves, as you see
here.
So let's go ahead and take a look at letter X here on the day and see if we can identify something similar.
So the daily chart, you know, same thing, we're just kind of shopping around here, we kind of begin
to form a little bit of an area of choppiness, consolidation.
That's really all it is.
You get a cell signal here in the stochastic.
You recognize that this is support.
You get out there, that's your half.
Because longer term, we have been going up.
You get across here, but not a signal, so you literally.
Only get this entry to the upside.
As we cross there and you get your once you got one and a half trades now.
Eventually, you get this cross, it's in the middle, like I said, and that's not a valid signal,
that's a 50 50 ball.
We do break above and we gap higher.
Well, now becomes an entirely different set of circumstances.
So you've picked up one and a half wins while the market was shopping and then you continue to go further.
Let's go ahead and just for the sake of argument, let's do Wal-Mart and see if we can find a nice shopping
time in the market.
So you can make an argument for this.
Being HRP, time of the market.
But even that is a little suspect because it's more like an art.
So you do need to recognize that basically what you're looking for is something that's definable because
you can't define the support, the resistance easily, that's not a good sign here.
You had an area where, you know, we had been rising.
You had a buy signal here.
It hit the resistance.
You had another close to a buy signal here, which you could have taken, I suppose, if you use a little
artistic license.
But you can see we broke out and went to the upside.
So you had one percent and then you had a completely different trade and that a repeat on and on.
So by all means, choppy market strategy, pretty simple, really comes down to money management.
You'll hear a lot of you know, you can use this indicator and you can use that indicator.
I just like using an oscillator that shows over about a year or so and you can use RSI.
But I found this.
The classic oscillator tends to work a little better in sideways markets.