There is danger in every type of market but nothing scares me quite like small and distributed days. Here are the dangers as I see it:
Boredom: I lose that sharpness. Watching a market trade in a few dollar range is one of the more painful, energy sucking circumstances in trading. It provides a very false sense of security. Waiting to get filled is worse than being behind check guy at the grocery.
Bad risks: You can make a lot of money just playing the range. In fact it is great for market profile trading. The problem is you have to be 100% committed to the trade. If you are committed you can get your risk back. Buying the bottom, getting out of partial in the middle and reversing at the top and so on. The problem occurs when you are not committed. You are making some money but missing the bigger move. Eventually you get caught in the break out and you give back all or most of your gains. Or you lose your patience and starting initiating a position at worse prices, meaning you get in a hurry and the market isn’t in one.
Price insensitivity: The problem with prices trading multiple times is that the normal information you can gleam from the way it trades is useless at that moment. It is extremely helpful in the longer term as we can see where positions are being built but says nothing about current market.
Expectations: What we preach is building a day. Making good trades and letting the market dictate what a good day is. Trading is a lot of sitting around and waiting for circumstances where you can put on a full position. If it is volatile you have many opportunities which makes it possible to cover some of your mistakes. When it isn’t volatile you have to be perfect to have a great day. financially.
To summarize trading in a range can be dangerous because of the boredom, risk gets skewed, price insensitivity, and expectations. To get over the boredom I get up often, knowing that I could miss something. I am really careful about how much total risk I take and what I getting in return. I know that I do not have the normal information and will make those proper adjustments. I get over the expectations really easily by understanding the first three. I have matured enough as a trader to know when to go after them and when not to. Make sure you have bullets when there are fish in the barrel.
How do you trade in small and distributed days?
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