Defining and Avoiding "Chop"

This thread is about defining chop. What it is, how you recognize it's happening, your strategy for dealing with it. Perhaps you love it? It's where you make your best money? Perhaps you stand aside, or zoom out or in to trade it differently?

I've come to the conclusion that any fool can make money in a trending market that keeps trending, but at some point, its' not a trend, it's not a reversal, it's not a base, it's just, ....... Chop?

JO

and have you noticed, there is never an image of it in any of those trading books we buy?

Ok, so what is your own definition of " Chop" ?

I most often recogize it when I see the price hanging about previous support/resistance, but it can't seem to break through, can't seem to head lower either, sometimes you see long expanding bars, - not associated with any announcement in one direction, then some consolidation, followed by higher highs and lower lows, etc... Well you get the picture.

I often don't recognize it until I look at a longer frame or zoomed out chart.

JO

As an intra-day trader of US stocks, I use an approach that determines if the market is likely to trend or be range bound within the first 5 minutes of the open. If it is range bound then this favours particular types of trade and if trending then other types of trade are better. I have discussed this at length on previous posts, albeit a long time ago, so there is not much point in me going through it all again.


Paul

Trader333 said:

I have discussed this at length on previous posts, albeit a long time ago, so there is not much point in me going through it all again.

Paul

Click to expand...

Well I can see why you don't want to bother repeating yourself. Any chance you remember which threads contained the meat of it, or if you used any key words we could search on?
JO

Paul,

With the utmost respect towards a trader who is light years ahead of my mediocre efforts, I do not understand how you can discern this with a high level of probability within 5 minutes of the open. The market often congests for several hours only to break into a savage trend later, or indeed does the opposite, or any combination between.

However I am very willing to accept that it may be possible to establish quickly if the market is likely to trend one way from open to close and if this is what you mean - or indeed if not - I'd be very grateful if you could remember the rough time or thread in which you posted your methods. I've tried searching but to no avail. Thanks very much.

frugi,

The US Stock Market has three phases during any one trading day which is well documented and has been discussed by many traders of US stocks on these boards and these are:

The morning session which lasts from the open at 2.30pm (UK time) to 4.30pm
The Lunch time chop which lasts from 4.30pm to around 7.00pm
The evening session which lasts from 7.00pm to the close at 9.00pm

Each of these can be likened to a new trading day (in my view) so at 2.30pm when the market opens it is only the first 2 hours that I am interested in for how the market is likely to behave. Of course it does not always work out like that but then again no approach is faultless.

What I will say is that my approach has been proven to be far more reliable than I would have imagined. Please bear in mind that I am not talking about how the overall market will behave but I have found that stocks that I monitor do tend to become range bound on days that I have determined that they are likely to and also that stocks will tend to trend on days that I have determined they will likely do as well.

As for when I posted how I go about this, well I honestly cannot remember but I did used to post live trades quite actively throughout 2004 and then explain why I had done so.

It would also be arrogant for me to think of myself as light years ahead of anyone as all I have done is worked to find an approach that suits me. This involves a number of key factors including price and volume analysis as well as Level II and Time and Sales. What I do know is that my approach is pretty unique when I have met with other traders and discussed with them how they trade compared to myself.


Paul

Thanks Paul, that's helpful. Sorry, my post sounded a little vague and obsequious! I'll have a good old dig in the archives tomorrow and see what I can unearth, if JumpOff or rogue don't beat me to it.

http://www.s108395813.onlinehome.us/enthios/charts/adxtrend.htm

this is an interesting link for chop and its a great site generally full of info. Once you've got your plan, sorted out your money management sorting out the chop problem is the key for traders who like me want to catch trends and its a real Achilles heel for me at the moment. Trading the euro futures recently I was massively up after 1.5 hour in the initial surges and then handed it all back in a choppy market. Greed and overconfidence playing a bit of a part in this aswell. Time of day is I think critical as previously pointed out but not failsafe. Maybe just trading the first two hours (avoiding price discovery volatility in the first 5-10 mins) and last hours of any market where order imbalances must drive trends is the best way to go though. Maybe standing aside for an hour or so once your trend catching trade fails in the first chop is also an idea as the period of chop for most products tends to be at least that long.

img. 1) Trending Market
This is one where the moves are made up of sustained increase or decrease in price.

img. 2) Sideway Market (also named Range)
A sideway market is one where price moves with small up and down movements within a general sideway direction. These up and down moves are insignificant to be considered as trends.

img. 3) Choppy Market (also named Volatile)
A choppy market is also sometimes referred as a volatile market. Like the name implies, it chops about in sharp price jumps usually characterized by gaps.