In my 6+ years of trading, more often than I would like to admit, I would trade with confidence, do very well, then give it all back.. Why is that?
I didn't understand when I shouldn't be taking trades. I felt that if I was at my computer, I should be actively trading.
In the last couple of years I have had a revelation to how to keep the good decision trading profits in my account and not give the money back.
Drum roll please...... Its knowing when NOT to trade! While this sounds easy enough, the temptation when others are trading and making money, I feel that I should be right there with them stacking Benjamin's. Well let me tell you something, trading is about MY decisions and no one else's.
I came up with a term I call the Chop Zone. I've found that if I can stay out of price action that is not making HH and HL (in an uptrend) or LL and LH (in a downtrend) I'll be trading in a Chop Zone.
I will literally mark up my chart on where I DO NOT want to trade, as my experience has taught me that when I trade in this chop zone, well, I get chopped up. There is a way to trade the chop zone, which we will go into in a later blog post.
You dont have to be exact with your chop zone. It's YOUR chop zone, not anyone else's.
Here is great example of a chop zone that I had drawn to stay out of price action that was not trending.. Oh there it is again, the word Trend!
-Stay out of Price Action between 4775 - 4790 - This is the Chop Zone. The EMA's are snaking and we are not making HH or LL consistently. There is no TREND!
-Wait for the PA to CLOSE above or below the Chop Zone
-Use your chop zone lines as support and look for discount before taking a trade
-Ideally look for a turn around signal after a discount (price goes beyond your chop zone, retraces and gives you a turn around signal)
-Ride the WAVE!
I will set my chop zone by looking to my left, identifying key levels that the price has not exceeded and draw my chop zone lines. Typically I only have to look a few hours back, but sometimes it may be a shorter or longer time.
Drawing this chop zone prior to Opening bell and then adjusting after opening bell (a lot of time based on my first hour box (see previous Blog post on First Hour Box) I can stay out of price action that is just too difficult to trade or is not trending!
Maybe using the chop zone will help you know when NOT to trade!
Maybe using the chop zone will also help you know WHEN to trade!
Trade well at FNL!