Day Trading Choppy Markets

Tips for Day Trading Choppy Markets

What is a Choppy Trading Market?

A choppy market is a simple concept, and it’s quite easy to recognize it when you know what to look for. A choppy market refers to price direction making little or no overall progress up or down, and bounces or oscillates back and forth.  Choppy markets can occur on all time frames. Choppy markets often occur because traders are awaiting a hyped up catalyst, buyers or sellers are in a tug-of-war style balance, or the price is whipsawing due to major contrasting conflicting reactions and opinions on various news events.

Choppy Market Tips

3 Tips for Day Trading Choppy Markets

While swing trading can be really tough in a choppy market, day trading can be an excellent skill to have in the bag when market conditions are choppy. This is because when swing trading, it’s so hard to get the consistent continuation needed to capitalize on swings. When day trading, you can take advantage of the volatility and close the positions by the end of day. Day trading can still be very challenging in a choppy market, and while not ideal there’s ways to take advantage. Here’s three tips you can think about when you find yourself with the ability to day trade in the next bit of market chop.

Tip #1 - Avoid Trading Congestion Areas

A congested market is seen whenever the price action is range bound causing it to move sideways. In a congested market zone, the next price candle will most likely remain within the range of a prior candle! You really want to avoid congestion zones when day trading in choppy markets. Trading in these zones of relentless chop can lead to bad entries and bad exits. It can also be extremely unpredictable. Tip #1 is brutally simple. There’s many other stocks you can day trade that most likely, are not in a mess of congestion. If you have trouble finding stocks to trade, check out our Trading Room and trade the stocks we trade.

Tip #2 - Look for Support and Resistance Levels

Finding support and resistance on stocks during a choppy market is crucial. This will help you avoid trading in the congestion zones. Focus on the support and resistance. Watch for breakouts to the upside, or the downside. Before entering a position, following the next tip is critical!

Tip #3 - Confirmation of the Breakout is Key!

When looking for setups, and you find something that appears to be at support and or resistance levels, these pivot points can be effective setups if you can catch the price movement as it tries to breakout of the congestion. Confirmation is key! The most important confirmation here would be increased trading volume. It is important to remember that when it’s choppy, price can break out of the choppiness! Sometimes this will continue the prior trend or, completely and utterly fail in the chop. This can trap traders (both bullish and bearish alike) who were trying to play that breakout.

In the end, you have to realize that a lot of money can be lost on choppy days, so if you find yourself taking on water… seek shelter and get out of the chop like a good fisherman would do! 

These are tips on how to think and react when day trading choppy markets. The more you learn, the more you earn! If you have any questions or comments about the best trading habits and practices, feel free to use the contact form below to get in touch with us.