Saturday, November 12, 2011


Chop is an area where there is no directional trend (Sideways). This is where most people tend to lose the most amount of money trying to guess direction of the next trend (Long or Short). Both Longs and Shorts are proven wrong. 

As people repeat their mistakes over and over again the result develops a "CHOP" area. Recognizing and avoiding this patterns as early as possible can greatly improve your overall trading. Eventually you can define and trade the range as price action pulls back into the CHOP area and sling shots to the opposite area of the range for a quick profit. Remember to always take profits on the way to reduce risk. Also remember to "SET STOPS"! "If you are going to jump out of the window... Make sure its from the basement window!!!" Meaning take a small acceptable, manageable loss.

A break in either direction is typically defined as a solid bar out of the CHOP area followed by a 2 solid bars in the direction of the movement. Some times you might get what is called an "inside day" or a "Semi Inside day"(as in example 2). Where price is consolidating or absorbing the current move before it continues to pushes in the the direction of the trend.

As long as Price  remains above the breakout point of the CHOP area the break is typically a solid move and price will continue in that direction.  The Key Word here is "TYPICALLY!" Not Always! This is why "STOPS" were invented.

"Typically" after the break out of the Chop area, that price level tends to act as a support area in the feature.

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