‫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% of the time, 75% depending 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 over about an oversold.
‫Ultimately you want to define where support and 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 stochastic oscillator.
‫Once we start forming and there should have been support there, there was a gap.
‫Once we get this.
‫Stochastic 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 with 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 the stochastic oscillator.
‫I use that as a signal.
‫On with trend trades.
‫I risk a whole unit.
‫So.
‫Whatever that is.
‫Let's just say risk 1% of my account.
‫Not with trend.
‫I'll just put that with NWT 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 bought here.
‫We hit resistance, got oversold.
‫So at that point you've got a 1% 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%.
‫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.
‫Couple rules are this.
‫If you get the thing 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 chopping 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 sell 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 a cross here, but not a signal.
‫So you literally.
‫Only get this entry to the upside.
‫As we cross there and you get your ones, you got one and a half trades now.
‫Eventually you get this cross that's in the middle, like I said, and that's not a valid signal.
‫That's a 5050 ball.
‫We do break above and we gap higher.
‫Well, now it becomes an entirely different set of circumstances.
‫So you've picked up one and a half wins while the market was chopping.
‫And then you continue to go further.
‫Let's go ahead.
‫And just for the sake of argument, let's do Walmart and see if we can find a nice choppy time in the
‫market.
‫So you could make an argument for this.
‫Being a time of the market.
‫But even that is a little suspect because it's more like an arch.
‫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 and the resistance easily.
‫That's not a good sign.
‫Here you had an area where we had been rising.
‫You had a buy signal here and hit the resistance.
‫You had another close to a buy signal here which you could have taken, I suppose, if you used a bit
‫of artistic license.
‫But you can see we broke out and went to the upside, so you had 1%, and then you had a completely
‫different trade.
‫And that will 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 overbought or oversold.
‫You can use RSI, but I found the stochastic oscillator tends to work a little better in sideways markets.