Apr 162013

One of the biggest factors in being a consistently profitable intraday trader or day trader is is staying out of choppy markets.  I have written other articles on this topic recently regarding the use of time analysis.  What you want to do there is basically identify if the market is moving or not in any given unit of time. For example, on the (Ultimate Tick Bars)  UTB bars, in general, I like to make sure the bars are lasting less than a minute in order to consider trading.

Another way of keeping yourself out of the chop is to take a solid look at where you are in the range.  In the chart below, we can see we are range trading from about 2:45 or so forward.

When I see this sort of circumstance, I know at some point it will break out of the range, but until it does, it is likely the ranging will continue.  Often you can get an idea of where it might be going from analysis with the zStrength tool and/or the zDivergence tool, but a market is much more likely to give you high reliability trend trades where it is out of this sort of clustering.

If I am going to trade in the above environment, I am much better off counter-trend trading.  Once we have broken out of range or gotten near the outer boundaries the game changes and I will shift to a trend related strategy.  In this case, I will be more inclined to try to let the trade run.  In the chart below, we can see what happens as we get out of range and the expansion occurs.

This sort of analysis is done on an ongoing basis in order to make a determination as to what kind of market environment we are in and what sort of plays are being put on the participants in the market.  Then, we shift our strategy accordingly.  The zStrength tool is very powerful for this sort of analysis and can give us an idea where traders are trapped on the wrong side of the market.  This is important information because when these traders get trapped, their stop orders provide fuel for market movement.  What we want to be doing is to be buying where they are selling and selling where they are buying.   These sort of tactics lower our risk and increase our potential reward. If following these sorts of plays new money enters, then we can get caught in big trades.  Once you understand these principals and use them in your intraday trading, you will begin to see a real difference in your bottom line.  These and other advanced trading principals are covered in detail in the zManual that comes with these tools.  You can visit DayTradingDivergence.com if you would like to learn more.

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