Trading is a game of probabilities that comes with a certain degree of risk. You can be the best trader in the world but it’s not possible to be right 100% of the time. That said, you still want to be right most of the time and the best way to increase your win ratio is to be very selective with your trades. Quality over quantity is the name of the game.
Choppy conditions exist when there’s no clear trend in the market. The price tends to be range bound and can tease traders with fakeouts.
Many traders lose money because they force their trades and try to find a good set up where none exists. There are some people who post their trades publicly and seem to always be in a new position regardless of the market conditions. The biggest problem with this approach is that if you chase the markets during choppy conditions you’ll always be one step behind.
Traders who long spikes and short after dumps during choppy markets will usually watch the price move against them once they execute their position. Unless you’re running an automated scalping bot, trading chop tends to be a waste of time with poor risk to reward.
Strategy and patience are the best tools for maximizing profit potential.
We find that the best trade set ups happen once a clear trend is established. Understand how to identify a new trend so that you can get in early and ride your profits. These market conditions don’t happen often but they tend to have the best risk to reward.
These trades are grand slams because we conserve our ammo and swing full power when a new trend is just getting started. This saves us time and maximizes our gains because grand slams allow us to ride profits on a larger sized order. Getting in early on a trend can give your position plenty of room to breathe. The most stress free and low effort trades are the ones that reach a profit zone with strong momentum.
Trading quality over quantity is just one part of a complete risk management strategy. Skilled traders create a plan long before the markets move. Identify key support and resistance levels to time your entry on a new trend. Always measure your risk to reward ratio ahead of time to determine an appropriate exit. A good trade set up should have at least a 3:1 risk to reward ratio.
Make sure to set your stop orders as a precaution in case the trade doesn’t work out. Another reason why we don’t trade chop is that you can lose money by getting stopped out. Some traders will even move the price by hunting stop orders. To avoid getting your stops hunted, don’t set them with round numbers at obvious support and resistance levels.