Ranging Market

Definition of “Ranging Market”: A Ranging Market a market where the price is moving back and forth between a higher price and a lower price. It is commonly referred to as range bound, choppy, sideways or flat market.

As a trend trader, my biggest enemy is a ranging market, because there is nothing to be gained from a ranging market as it has no clear trends.

You’d end up losing most trades if you traded in it.

How do I identify a ranging market?

Personally, my favourite indicators of a ranging market are:

ADX is constantly below 25.
VWAP is a relatively flat line.

The big challenge is in learning to walk away on days when the market is trading sideways.

I think today was such a day.

It’s like you’re all ready and raring to go make some good trades, only for the realisation to slowly sink in.

Yes, it’s frustrating to not be able to find good trade setups.

My older self did not know how to identify a sideways market.

My older self would have tried to force some trades, tried to “see” some setups that aren’t actually there, and tried to jump into some impromptu trades for a quick profit.

And I would likely have had lost money on those trades. And in some instances, I might have even gotten emotional and revenge traded, eventually ending the day with even greater losses.

Been there, done that.

But today, I decided to just shut down my computer and walk away. No trading for today.

And I’m at peace with that.

Remember, it’s far better to have zero profits for the day than to make losses.

Focus On Technique, Not On Profits

Michael Phelps has one of the most beautiful butterfly techniques ever, which is a big reason why he was so good.

One thing you have to learn as a competitive swimmer is that technique is everything. Once you master the technique, the speed will come naturally.

The majority of your time and efforts should be on perfecting your stroke.

In the same way, I believe that for day trading, you have to focus on perfecting your execution and not so much on your P&L.

Obsess about adhering to every single step of your trading plan/strategy.

Obsess about risk management and minimising your losses.

Obsess about not jumping into a trade too early.

Obsess about keeping your emotions in check regardless of whether you win or lose.

Granted, your trading strategy should be a winning one (i.e. have an edge), and once you’ve found that – which I don’t believe is a difficult thing to do – it is then up to you to aim for perfect execution.

And once you master all that, I believe the profits should come naturally.

I’m definitely not there yet, but I’m working hard in the hope of getting there one day.

Hit And Don’t Get Hit

I just watched the UFC Heavyweight title fight today between Francis Ngannou and Ciryl Gane.

I thought Gane fought great and did well not to get knocked out by Ngannou, but he just wasn’t prepared for Ngannou’s unexpected ground game.

We all know Ngannou has one-punch knockout power, and he can destroy you in a split second.

All it takes is one swing for Ngannou and it’s lights out for you. Game over.

In the same way, I treat day trading as if it’s a fight against Ngannou.

The stock market is a beast, and it can destroy you if you make just the tiniest mistake.

You can’t afford to make even the slightest error. You have to be 100% on point, following your strategy to a tee every single time.

If you get sloppy, the market will destroy you.

If you get greedy, the market will destroy you.

If you get emotional and revenge trade, the market will destroy you.

Always be extremely careful, and always know that you are playing a very dangerous game and can be wiped out at any moment.

It’s like what they always say before a fight: “Protect yourself at all times.”

Maximum Two Losses Per Day

I have a personal rule: Walk away after two losses per day.

Not that I have been able to follow it often, to be honest. I’ve broken the rule many times. I always think one of the following things to myself:

“I’ve been really unlucky today. I’ll just do one more trade to get back on track.”
“Maybe I’ll just jump in here for a quick profit – even though it does not fit my strategy to a tee – just to feel better about myself.”
“I just want to get ONE win today. Reduce my deficit by a bit. Then I’ll log off.”
“I know I can do this. I’m better than this!”

It took me a long time to learn to walk away after two losses in a day.

It sounds like an easy rule, but for me it is soooo hard to do.

I’ve only recently been able to walk away after my first two trades were BOTH losses.

Major milestone.

It has to do with ego. It has to do with our repulsion at ending the day red. It has to do with our desire to make at least some profit every day (which is impossible, by the way). It has to do with our need for validation, to know that we haven’t lost our trading mojo. It has to do with that deep feeling of unfulfillment at making a loss.

But trust me, in the long run you will lose a whole lot less by capping your losing trades to just two a day (or however many you feel is a good cap for yourself).

Losses are inevitable. It’s how you handle your losses that make or break you as a day trader.

I’ll Just Jump In Here For A Quick Profit

I love momentum in trading. My entire trading strategy is based on momentum.

So whenever I see a stock trending really well, I will always think to myself “I’ll just jump in and out here for a quick profit!” even though the setup is not the exact setup that I am supposed to trade.

This is especially so when I’ve just had some losing trades and am desperate for some quick profits to feel good about myself.

One word of advice: Don’t. Just don’t.

More often than not, it doesn’t end well for me.

So just don’t do it.

Control Your Urges

One of my personal rules is that I do not want to enter into any trades before 1015am, unless it is an extremely compelling situation at the 940am mark.

This is because I know that more often than not, there will be sudden reversals at the 945am and 10am mark. (Been burnt many times.) And the 15 minutes after 10am can also be tricky.

Hence my “no trading until 1015am” rule.

However, it can be extremely difficult to control my urges to want to jump into a trade especially when I see a stock moving strongly in a particular direction.

So therefore, the bottomline is:

I know that I will end up with more losses and frustration if I break the rule.

And a bad first trade may negatively affect my mood and temperament for the rest of that trading day, which is a very dangerous thing.