Trading in a Choppy Market : NobleTrading Blog

Thursday, January 14, 2010

Trading in a Choppy Market

Trading in choppy markets, where prices move up and down without any major trends, requires strategies different from those used while trading in trendy markets. The traditional buy and hold and long-term investment strategies may not be very profitable. To know more, read what is a choppy market?

Buy-low sell-high (buy support and sell resistance) is often the best strategy for choppy markets. Prices often go up and down without forming any major trends; traders can better explore small price differences by having high position sizes and utilizing leverage. Short selling can also be profitable; traders can sell high and buy low.
Trading with oscillator indicators can be a good strategy. Statistics shows that indicators like Relative Strength Index or RSI and Stochastic Oscillator offer better buy and sell signals in choppy markets than trending ones.
Long term traders and investors should limit their trades and invest after proper screening. More trades means more trading cost and less profit. Traders should do proper fundamental analysis before investing as shifting from one hot stock to another won't be a profitable strategy.
When trading in choppy markets, all types of traders should set small profit targets and strict stop-losses.