One of the most frustrating aspects of the current market is the choppy action.
It’s obvious with individual stocks – where a stock will start to run, pushing up 3% or more one day and looking like it’s ready to press higher.
Then it backs off 3% or so the next day, basically wiping out whatever gains it had previously.
Lots of action… but, no real movement.
The same is true for stocks that fall one day, and finally look to be beginning a correction phase. Then, those same stocks recover the next day.
That choppy action just drives traders crazy. Most of the time, the initial move isn’t enough to justify taking a profit on a trade. So, we hold on to it – hoping for just a bit of follow-through on the move.
Then… the move reverses and whatever slight gain we had just disappears.
Personally, I’m sitting on eight positions in my trading account – six long trades and two short trades. Every one of them is stuck in a “chop.”
To make matters worse… even sectors that I’m waiting to buy into are stuck in a “chop” as well.
Gold stocks (GDX), for example, have been chopping back and forth for more than three months. Every time it looks like GDX is finally going to break down and decline to where I’d like to buy it ($25-ish), it somehow finds support and bounces.
Then, every time it looks like it’s ready to break out and start a new rally (above $28) GDX hits resistance and turns back down.
In this sort of environment, the ONLY smart thing to do is to simply wait it out.
Yes… it is enormously hard to be patient. But, the “chop” will eat you up. It will mess with your emotions. It will wear you out. And, it will eventually convince you to abandon your trading discipline and just make trades for the sake of doing something.
And then the “chop” will take all of your money.
Don’t let that happen. Instead, just wait it out.
Here’s the great thing about the “chop”: All the back-and-forth action builds up energy. At some point that energy will be released with a big move in one direction or the other. And, that move will be more than enough to generate gains that will make up for an extended period of inactivity.
But, you have to have money available to take advantage of it. If you’re forcing trades just for the sake of doing something in a choppy environment, then you’re probably going to churn your account.
And, you’re not going to have money available to take advantage of the breakout/breakdown when it happens.
Stick with your discipline. Only trade new positions that offer you a low-risk/high-reward setup. And, be willing to accept the fact that sometimes there just isn’t anything to do. Choppy markets eventually turn into trending markets.
So, if you can avoid chopping up your account, then you’ll have money available to take advantage of the next trend.
Best regards and good trading,
Jeff Clark
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