If you look at the S&P 500 daily chart, it looks pretty darn good…
Zoomed out, the market is chugging along beautifully…
But if you zoom in a bit, some crazy moves are happening.
Gold and silver have been on legendary runs for over a year.
Those runs ended last week, when they both saw their biggest single-day drops in history.
Bitcoin (BTC) tanked further over the weekend, now down 38% from its highs.
Think that means people are rushing back into cash? Think again…
The U.S. Dollar Index is also down more than 30% in 12 months.
These are some counterintuitive moves. They don’t teach this stuff in Economics class.
I don’t pretend to be a macro prognosticator. Not my bag.
But as a trader, it’s my job to know what I don’t know.
And since I don’t know how (or when) this volatility will shake out, or what these historic swings in commodity prices mean for the broader market, I’m making some adjustments.
You should do the same.
Here Are 3 Ways To Play The Choppy Market…
Tighten Your Stops
In a trending market, I can give positions room to breathe.
I can set wider stops because I know the overall direction is working in my favor.
In a choppy market, that doesn’t work. Volatility is higher, swings are bigger.
If you give a position too much room, you’ll take oversized losses.
Instead of a 30% maximum stop on an options position, keep it at 20%-25%.
Get out faster when the setup isn’t working.
Choppy markets will try to fake you out, but tight stops protect you from those whipsaws.
Yes, you’ll get stopped out more often. That’s the trade-off.
But you’ll also avoid big losses entirely. That’s priceless.
Reduce Your Position Size
This goes hand in hand with tighter stops.
If you’re getting stopped out more frequently, you need smaller position sizes to compensate.
Smaller positions mean smaller losses when you’re wrong. And in a choppy market, you’re going to be wrong more often.
The key is making sure those losses don’t add up to an unmanageable drawdown.
Think of it like this: if you’re taking five trades and three of them get stopped out, you want those three losses to be manageable.
Smaller size gives you the breathing room to stay in the game while the chop works itself out.
And contrary to popular belief, smaller positions don’t always mean smaller gains…
Wait For Your Levels
Choppy markets tempt you to trade more.
Every day there’s some wild move, and every swing looks like an opportunity.
I do the opposite. I trade more selectively.
I wait for my levels. I identify support and resistance ahead of time, set alerts, and only enter when the stock comes to me at a price I want to pay.
If SPY is chopping between $685 and $690, I’m not buying at $687. I’m waiting for it to come down to $685, or I’m waiting for it to break and hold above $690.
I let the chop happen without me in the trade.
Wait for your levels. Strike when you get them.
Most importantly: K.I.S.S.: Keep it simple, stupid.
(I say that last part with love).
Happy trading,
Ben Sturgill
*Past performance does not indicate future results