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!
