Choppy markets can be brutal for traders.
One day stocks are up, the next day they’re down.
It feels like there’s a lot of action… But really, there isn’t much of anything happening.
The S&P 500 has been locked in a super-tight trading range for the past month. The index has waffled between 6000 and 6100 – frustrating bearish and bullish traders alike.
Ultimately, this consolidating action serves to build energy to fuel the next trending move. But, it’s tough to sit through the action (or lack of action).
Most folks tend to over-trade in this environment – trying to scalp every move between support and resistance. That activity rarely pays off. Instead, traders chew up their accounts as they force trades that aren’t quite ready to go.
We get frustrated as small gains turn into small losses. So, we take the hit and move on to a different trade which looks even better. And, we end up getting chopped around in that trade while the previous position rebounds and would have been profitable.
Trading Around the Core
It is often helpful in this situation to look out 60-90 days and trade the setups that might play out in that timeframe, ignoring the day-to-day fluctuations of a choppy market.
Or… have a core position on a stock – which you plan to hold for 60-90 days – and add a short-term position for scalping smaller, faster moves.
This “trading around the core” allows a trader to maintain a position in anticipation of a large, breakout move. At the same time, we satisfy our craving for activity and avoid the frustration of watching small gains fade and turn to losses.
When the market starts trending again, we have our core position to take advantage of that move. And, while the market is chopping inside a tight trading range, we have a smaller short-term position for scalping those choppy moves.
Free Trading Resources
Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.
My main point here is that in a choppy, back-and-forth environment, it is sometimes useful to divide a position into “big picture” and “little picture” subsets.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
P.S. This type of volatility is exactly what I was expecting during the first 100 days of President Trump’s second term. And for savvy, smart traders – this could be the most profitable 100 days of your life.
Check out more of my strategy right here for getting at least one chance to double your money each week for the next three months as President Trump deploys his agenda.