Not All Sessions Provide Equal Opportunity

On Thursday morning I woke to find two emails somewhat related to the same topic – the challenging trading conditions we’ve experienced so far this week.

So my first thoughts were to expand upon a topic I shared via social media a bit over a week ago. Because I know that only a small fraction of you receive my social media posts.

And this one is important!

Here’s the post which shows the daily chart for NQ as at the 1st of June. The same concept applies for ANY market.

Let’s first talk about what is showing in the bottom half of the image. And then we’ll get to “what it means”.

It’s simple to set up:

Nice and easy.

And it gives an immediate comparison of the current days range versus the average over the last month.

So let’s see exactly what prompted the email concern over challenging trading conditions.

The emails related to ES and CL, but I’ll start by updating the earlier social media post.

This is NQ as at the time of writing, early on the 9th of June 2016:

Of course, low daily ranges DO NOT necessarily mean a tough session. There are other factors involved as well.

But for many of us, who operate a strategy that requires price movement to profit, there’s a high likelihood that narrow range days are those that get on our nerves.

Narrow range = limited opportunity = frustration!

Here’s the thing though…

It’s completely normal. Narrow ranges are a part of the game. And we need to learn to work with them.

We need to learn to profit over the longer time scale… comprising periods of both wider range markets and lower range markets.

The good news though, if you’re stuck in a period of quiet markets and narrow ranges, is that it won’t last. At some point the markets WILL move. 

So what do we do with this data?

1. Use it manage expectations.

In an ideal world we would outperform in every session.

But unfortunately most of us don’t live in that world.

There will be days when everything aligns perfectly. The market offers us perfect trading conditions. And we’re actively focused and alert and able to take advantage of that opportunity.

But there are also days when the market offers anything but that. The market provides trading conditions which are completely unsuited to our style of trading. And we’re slow to recognise and adapt.

I use the daily chart with this overlay to somewhat manage my expectations. It says nothing regarding how I personally traded. And nothing regarding the “way” that price moved, whether smooth and easy or choppy and difficult. All it does is provide an indication of the daily range of movement, and where that fits with respect to the average movement over the last month.

I require price movement to profit. So, like it says in the original social media post, this is how I operate:

Of course, we always review the sessions and see what we can learn from it. We always seek improvement.

But be gentle with yourself. Low range days can be challenging, if you require movement to profit.

If the market is not helping you out at all, don’t get yourself down. You need to be motivated and focused and excited when the opening bell rings tomorrow.

That’s the key message in this article – be kind to yourself!

If you’re going to beat yourself up, this is the time to do it:

A final note on this point. Some of you, with different strategies or styles of trading, may find that the opposite is the case. Your trading might be better suited to the quiet rangebound markets. In this case, you’ll flip your expectations from what was shown above.

2. Use it to improve your ability to recognise and adapt to current conditions.

So it’s a good thing if we can be a little easy on ourselves after achieving a drawdown in a narrow-range choppy sideways day.

But ultimately our aim should be to learn to recognise this narrow-range choppy sideways day AS EARLY AS POSSIBLE, so that we can adapt.

Perhaps through reduction of position sizes. Or being more selective with trade entries. Or adjusting our trade management style to take a greater part of the trade at closer targets. Or maybe even just standing aside until price breaks and holds beyond the current congestive chop.

This allows us the best chance of keeping that drawdown to a smaller amount. Or perhaps allowing us to gain and hold a small profit instead.

So how do we gain skill in quick recognition of poor conditions?

Here’s where I refer you back to my old friend, the Market Structure / Price Action Journal.

If you take only one thing away from this article… it’s to be kinder to yourself when the market offers crappy trading conditions. I get a lot of email from traders. I see how many of you talk about yourselves. Be kind. You’re a trader. You’re my favourite kind of person! You’re awesome!

Now focus… better days are coming and you need to be ready.

Happy trading,

Lance Beggs

 

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