Periods of great opportunities are often followed by periods of great challenges. Challenging market environment is not a market correction. As long as there’s clearly defined trend, up or down, there are many more opportunities than uncertainty. There’s never 100% certainty, so stop looking for it. There are times that are simply more challenging for traders. I refer to them as choppy markets. Choppy markets change direction frequently and shake out both overly active traders from both, long and short setups. Choppy markets frequently go above and below their 5, 10 and 20-day exponential moving averages.
The biggest troubles in trading come from overtrading in a choppy market environment. Those periods don’t last long. There’s only one cure for them – do less, trade less, use smaller position sizing. The goal is to keep any capital drawdown to a minimum and protect our confidence. Why is protecting our trading confidence so important? Because market environment constantly changes. Periods of choppiness are regularly followed by periods of great opportunities. If you lose too much of your trading capital during choppy markets, you are likely to second-guess yourself when a trending market comes around and miss on some great opportunities because of fear of further losses. Many traders are fearful when they should be bold and bold when they should be proactively taking gains and raising cash positions.