Chop - futures trading

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When the market is restricted within a tight trading range and the bar size as a percentage of the trading range is large, price action signals may still appear with the same frequency as under normal market conditions but their reliability or predictive powers are severely diminished. Al Brooks identifies one particular pattern that betrays chop, called "barb wire". It consists of a series of bars that overlap heavily containing trading range bars.

Barb wire and other forms of chop demonstrate that neither the buyers nor the sellers are in control or able to exert greater pressure. A price action trader that wants to generate profit in choppy conditions would use a range trading strategy. Trades are executed at the support or resistance lines of the range while profit targets are set before price is set to hit the opposite side.

Especially after the appearance of barb wire, breakout bars are expected to fail and traders will place entry orders just above or below the opposite end of the breakout bar from the direction in which it broke out.


I find that many traders are losing traders, not because they fail to detect market direction, but because they fail to execute good trades that exploit that direction. Most often this means that they enter long trades after significant strength has already materialized and vice versa. By the time they chase the move, it's natural for a retracement to occur. Aware of the need to cut losses, they bail out after the retracement--only to see the market move their way eventually.

That's a big part of what traders mean by getting "chopped up". Very often, getting chopped up means getting direction right, but executing poorly.


Known also as: Chopped, Chopped Up, Barb Wire, Churn, Whipsaw, Whipped Sawed

See also:
Created by  steve2222 , June 23rd, 2016 at 04:31 AM
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