How Do I Avoid the Chop Chop?

[zdo]

Originally Posted by waveslider I like Joe Ross's definition where if you have an "A_B_C" pattern in one direction that fails, then another "A_B_C" pattern in the opposite direction that fails in the same price range - price is locked in a range.

Joe Ross also has a pretty good definition of price pattern congestions (ie it's codable) in The Law of Charts 'book' and it's companion article. Also has some techniques for RossHooking out of congestions - although, in-situ and pure / alone, those don't test out well.

Now if I had to choose just one desert isle indicator for identifying congestion for automated systems work, I would go with a 4 period JMA (using (H+L+C+C+C) * .2) for price input parameter) as the JMA tends to get flat quicker than any of the other adaptive central tendencies (like HMA etc.). If slope / angle goes flat two bars in a row, then in congestion.

hth

[simterann22]

Edabreu, I like your style. I am drawn towards scalping with the idea that every trade should begin as a scalp....and welcome the gravy if it comes your way. What fast MA are you using overlayed on your charts? HMA? JMA?

I've found trading the morning session with a 133 tick chart on the ES good. This small timeframe has been good to minimize stops. I've added to my trading using 3 different timeframes charts side by side to enable me to get a bigger picture. I've managed to catch breakouts by placing bracket orders outside of "small" congestion boxes.

BTW....thanks to all those who have left comments following my post.

[edabreu]

Originally Posted by simterann22 Edabreu, I like your style. I am drawn towards scalping with the idea that every trade should begin as a scalp....and welcome the gravy if it comes your way. What fast MA are you using overlayed on your charts? HMA? JMA? I've found trading the morning session with a 133 tick chart on the ES good. This small timeframe has been good to minimize stops. I've added to my trading using 3 different timeframes charts side by side to enable me to get a bigger picture. I've managed to catch breakouts by placing bracket orders outside of "small" congestion boxes. BTW....thanks to all those who have left comments following my post.

A 133 is too fast for me. I use a 6range/4range combo. I use a 10HMA. What matters is that you set up your charts and then spend some time looking at it and see if there are setups that are identifiable on a repeated basis that you can put some entry rules around and add some mm to it. Scalping does not imply fast. To me it implies precise entry to acquire first target 80% of the time.

[markl67]

[quote=edabreu;67703]A 133 is too fast for me. I use a 6range/4range combo. I use a 10HMA.

What do you mean by 6 range/4 range combo? Thanks.

[edabreu]

[quote=markl67;67746]

Originally Posted by edabreu A 133 is too fast for me. I use a 6range/4range combo. I use a 10HMA. What do you mean by 6 range/4 range combo? Thanks.

It's like a higher time frame, but in this case a bigger price bracket on the bar.

[jeffx]

Here's a good way to determine chop, any time frame

Note that this works great on FX, although the trader who taught me this trades just about everything that moves.

Fib retracements - do fib retracements between most recent significant swing highs/lows, in both directions (1 retracement up, 1 down) If price is moving between .786's, you're definitely in chop.

CCI works GREAT, if used properly. It is NOT an oscillator like a stochastic, it is much more of a momentum indicator. If it's staying OB/OS, that's a great indication that you are in a trend, or momentum is in that direction.

Try this -- throw a 50 period CCI on your chart. Above 0 = uptrend bias, below 0 line = downtrend bias. Watch what happens to price when the CCI breaks the 0 line, and especially when it breaks the 100/-100 lines. You are NOT looking for a reversal if CCI breaks below 100 or above -100 lines, that is only an exit indication.

Lastly, if the CCI 50 is just bouncing between 0 and 100 or 0 and -100, without breaking a "line", that is another good indication of chop.

Is it perfect? No! Will it give some false signals? Yes! But I've found no other indicator that is more accurate. For more info, google CCI Dr. Bob (free info) and you'll also find some great setups with CCI. This is NOT the way Woodie teaches it, it's much better IMO.

[waveslider]

ZDO -
thanks for that post. Agree with you about Ross hook (though I had not tested it, figured it wouldn't work so well unless obvious momentum conditions). Also agree with you about JMA, which I use. I also use a short term JMA to help identify waves.

[zdo]

waveslider,

re: "I also use a short term JMA to help identify waves" a fast noLagMA or jtHMA might work slightly better for identifying waves than JMA - mostly a matter of taste though...

[BlowFish]

Originally Posted by waveslider ZDO - thanks for that post. Agree with you about Ross hook (though I had not tested it, figured it wouldn't work so well unless obvious momentum conditions). Also agree with you about JMA, which I use. I also use a short term JMA to help identify waves.

Ross Hook's will often trigger a traders trick entry but fail if it is actually a two legged correction. As you say momentum is often a good clue that you are only in for a short single leg correction.

[legout]

Identify the range, and wait for a breakout? Trade the first pullback in new direction? Or anticipate which direction and get in at the opposite side of range?

legout