Identifying Choppyness to avoid losses.

I find that when I trade during trends, I do very well, but then come the choppy periods and I give back much of my profits. If we could somehow identify choppy periods early to avoid trading during them, I think we could all benefit tremendously! So the purpose of this thread is to share ideas/indicators/systems/suggestions that will help us do that.

 

Any ideas?

I will contribute the first idea to get the ball rolling. If a market is trending higher and making consistent higher highs and higher lows, if it suddenly stops making higher highs and/or higher lows, we may be in for a period of consolidation or even a reversal in trend. Visa Versa for a short trend...

Hi Diesel,

 

Interesting idea.

I wrote an indicator to see what it would look like.

http://www.4shared.com/file/UM04Q-NH/H_L_Trend.html

 

http://www.4shared.com/photo/-E3jCIlE/eurusd.html

 

The top histo is the result - blue for uptrend, red for downtrend, nothing for no trend i.e. consolidating.

The second histo shows the continuous setting, showing the overall trend.

The MinPips variable defines the distance above/below the previous bar.

 

Trend filters are difficult and I’ve yet to see a truly effective one; it seems to be a compromise between sensitivity to the trend and delay due to filtering.

 

The bottom histo is one of my attempts.

It’s pretty ordinary, but someone may like to play with it.

http://www.4shared.com/file/KQGfniC6/Trend_Filter.html

 

Edit:

I don't think the inserted picture is showing, so here's the url

http://www.4shared.com/photo/-E3jCIlE/eurusd.html

Edited May 27, 2011 by apresau

apresau,

 

The link to Trend_filter is not available. Please could you re-upload.

(The link with the pictures is OK.)

 

Thank you.

I will contribute the first idea to get the ball rolling. If a market is trending higher and making consistent higher highs and higher lows, if it suddenly stops making higher highs and/or higher lows, we may be in for a period of consolidation or even a reversal in trend. Visa Versa for a short trend...

 

Diesel....you probably already know this but, I'll just throw it out there....when I see the market making a HH and LL I refer to the MACD to see what it is doing as well....if the MACD is simultaneously going down while price is going higher I find that a divergence may be setting up and the trend is about to reverse....traders who are getting in on a HH are ususally chasing the trade....that's when I would shift to a lower timeframe for entry....I would rather monitor the macd for divergence and or convergence setups.....if a divergence is setting up then the macd is posting LLs and may even be heading towards the water line.....so I would then wait for the trigger line to cross the signal line, ....also, I would like to see where price is on a higher timeframe...the 4 hour for Direction, the 1 hour for Momentum and the 15 or 5 for entry....possibly on a retracement.....allowing me a tighter stoploss....using the 6/12 emas (as an example) are a good barometer to measure each timeframe....if 4 hour is above the 6/12 ema and the macd is above the waterline, then I would be looking for longs and would wait for the entry on the 1 hour, 15, or 5.....depending on price action relative to the 6/12 AND what the MACD is doing....this is topdown analysis.....I know some professional traders who advise to only enter a trade at the top half of the hour (for example, only between .45 and .15 after the hour)...they found that there is more volume during that time of the hour....also....along with the macd...if price has consistent wicks then price is being rejected at the top even though it's posting a higher high...tails and wicks can clue us in on a possible shift of direction.....with the 4 hour for direction and the 1 hour for momentum (and possible entry as well) we almost always have a good setup....

Edited May 28, 2011 by rick

http://www.forexfactory.com/attachment.php?attachmentid=474976&d=1273946594

 

I found this on Forex Factory back when I used to actually read that forum.

It's just a simple MA Envelope.

But effective! :)

vx....do you happen to know the MA settings for that chart? It is very visual....I noticed that is a Daily chart you used.....Doing a topdown analysis would tighten the entry and stop loss...thanks

http://www.forexfactory.com/attachment.php?attachmentid=686309&d=1303805877

 

Another trader had answered my humble request when I posted the question on FF about that same question last month.

He believes that these are the proper settings.

 

If you can't see it, it's:

Period: 80

Method: Simple

Apply: Close

DEviation: 1.80%

thanks for sharing this ... Edited May 29, 2011 by megashop

How about using Woodies Chop Zone Indicator, Fx sniper's Sidewinder overlay, The Damaini Volatameter V3.2 and many more in the folds..like Trend strength Index by Tushar S.Chande, Ferru FX multi indicator that measures the trend strength in Percentage, and another one ofcourse... given by Brooky....

 

All these i presume that gives a little bit of help in identifying the Choppy grey areas in the price action.

 

Regards

Saivenkat

If trying to do the same thing on a H1 chart I use:

 

Period: 50

Method: Simple

Apply: Close

Deviation: 0.20%

 

Rgds

RM

I use ATR and volume to understand choppiness. If the volume is too low and market is sideways, stay out, if the volume is high and the market is sideways, bulls and bears are fighting in out so stay out :). Wait for a breakout.

The folks in this thread actually use congestions for trading. I am currently testing that method. http://www.forexfactory.com/showthread.php?t=302007

The folks in this thread actually use congestions for trading. I am currently testing the system. hxxp://www.forexfact0ry.c0m/showthread.php?t=302007