3 Ways to Avoid Getting Chopped Up By The Market

It’s a common problem. You stick to your stops with discipline, you practice correct position sizing, and yet you find yourself still losing. While you managed to avoid any large disastrous losses through good risk management, you fell into another trap: death by a thousand cuts.

For me personally, this was always my Achilles heel. I respected the market far too much not to practice good risk management, but I was always trying to do too much with my trading. Trying to catch every move. Trying to trade every style. I was still profitable despite this because I did the most fundamental things right, but I was consistently hurting my bottom line.

So here are three things that I learned that can help you avoid getting chopped up by the market.

1. Respect The Time

When you’re day trading, time of day is a very important thing to take note of. If you try to trade frantically all day long, you’ll inevitably get chopped up. The reason for this is that the markets are made up of people (well at least for now… the bots are on the rise!), and people are creatures of habit. People take lunch at similar times each day, and when they’re at lunch, the markets are slow and choppy. This is generally the 11 am – 1 pm EST time-frame. So if you’re trading during that time and looking for breakouts, guess what? You’re going to get chopped up. At least on the majority of days.

So the first thing you can do to avoid getting chopped up is to respect the time. Don’t trade during the slow and choppy lunch period at the very least. Or if you do trade, don’t be looking for momentum trades. The market will rarely have directional conviction and momentum won’t be sustained. Instead, look to predominantly fade directional moves.

2. Play The Zones

One of the most profitable ways to trade is to know how to locate important support and resistance zones, and mostly limit your trade entries to those zones. The one exception is if you have a trend day in the making, in which case your job is to get on board the trend as early as possible. One of our free training videos (available for viewing simply by subscribing to our email updates on this blog), teaches how to gauge if the odds are good for having a trend day.

But if the context doesn’t support a trending move, then you can avoid getting chopped up simply by not trading until price reaches your predetermined zones. In this way, you’re avoiding all the random action in the middle of the chart and only trading at the extremes where we’re likely to see market reactions.

3. Mind The Context

If your style is to get on board momentum moves, and you’re not comfortable with fading the market (as suggested in point number 2), you can avoid getting chopped up excessively by understanding the market context. And when I say context, I mean it from a dual perspective: direction and volatility.

In general, a move is more likely to continue if it’s in line with the larger time-frame bias. This is the direction part. So make sure you’re looking at the bigger picture chart and aligning yourself with the larger bias. This will decrease the number of times you jump on board a momentum move only to watch it reverse.

In terms of volatility, you’re less likely to get chopped up if you only take momentum trades during generally elevated volatility environments. There are numerous ways to gauge the volatility environment, but it can be as simple as looking at the previous few days and seeing what kind of ranges you’re getting and whether short-term momentum is following through. If not, you’re going to get chopped up trying to trade this way. Respect the context, and you’ll minimize it.

 

So there you have it. Three ways to help you avoid getting chopped up by the market. How about you? Do you have any more ways that you use to avoid getting chopped up? I’d love to hear about them!

  • Great advice Awais! I also continually monitor where Value is developing i.e. higher/lower/overlapping (with respect to previous day Value), POC migration and if we are balancing/rotating vs 1-timeframing on a 30 min time bracket.

    • Hey Atul,
      Thanks for the comment! Btw, this post was written by Ziad but we both have similar views on the market.

  • To be honest, today I have got chopped up twice. Tell me Ziad, have you planned to write this article or is it just spontaneous reaction due today’s market? Just wonder :)
    Well I’d say, there are days you can expect chops just by looking at economic calendar. The days before realeasing lots of economic reports when market participants wait for these data and there’s lots of uncertainty, so markets go sideways. Days like OpEx, quadruple witching, today’s election, etc. Or days after trend days can be expected to have narrower range. This is rather for expectations for chop then avoding of getting chopped up.
    I think you have written the major one – patient and trading range extremes.I identify potential chop by looking at structure of candles. If they change all over again it might be sign of sideway direction.

    • Great insight Petr. Those are definitely great tells for potential chop and being aware of them will also help. As far the article, I’ve been meaning to write about this for a while :)

  • Ziad thanks. Just want to say your each articel that always come, come at the right time. It really helps me not only by content but also mentally. I was trapped in chop today too.

    I try to identify chop similarly like Petr. Candles go over each, there´s no visible weakness on one of the sides. Strong bull candle, next strong bear candle etc.

    • I’m glad they’re helping Tomas! And yes, reading the character of price is very helpful too. As is reading market internals to see if there’s a definite bias or not.

  • EasySkanking

    One thing that I have learned, is to not trade just to trade – because you want to “get rich”. Rather, trade only when you have the proper setup – when your strategy ‘lines up’ and tells you “hey it’s time to trade” :). Be patient. Take care of your money. And the profits will come :)

    These are great points Ziad, and very helpful. If new traders were to take just one point from this article, they would benefit greatly :). It just shows how experienced you are as a trader. Thanks! I personally learned a lot from this article that saves me a lot of time and “stuggle” ;) and shortens my learning curve!

    • That’s great to hear! Shortening traders’ learning curves and making the journey a bit easier for them is exactly what we’re trying to do. And great points you mentioned yourself. Do things right and the profits will take care of themselves.

  • In #2 Play The Zones, you said “One of the most profitable ways to trade is to know how to locate important support and resistance zones, and mostly limit your trade entries to those zones.”

    Besides the work I’ve done psychologically and changes I’ve made in my thinking, point #2 has had, by far, the most profound positive effect on the technical aspects of my trading of anything I’ve ever done. It has transformed me from making lots of mediocre trades and getting mostly chopped up, to taking positions where I not only see better moves in my direction, but have the confidence necessary to avoid moving my stop in fear or exiting too early. It definitely takes some getting used to though, because I’m always entering “at the edges” and that seems to be against my/our natural inclination.

    I’ve heard a very successful trader state this in a different way: “Don’t diddle in the middle.” ;)

    Great post!

    -AT

    • Thanks for the insights AT. Yeah point #2 is a really big one. Huge in fact. It benefits you on so many levels. They key, like you said, is just to train our minds to go against the seemingly scary price action that’s coming right into the zone.

      And I like that quote btw!

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