How to Avoid Trouble in a Choppy Market

by Darrin Donnelly on May 11, 2011

Click on chart to enlarge.
Click on chart to enlarge.

We’re seeing signs of an indecisive (choppy) market, which, historically, is not too uncommon for the month of May.

On Tuesday, the NASDAQ recorded an impressive Accumulation Day as it powered higher on increased volume.  On Wednesday, the market responded with a Distribution Day as it FELL on increased volume.

The key to successfully managing a choppy market environment (especially for trend followers) is keeping a short and focused list of stocks.  You can run into serious trouble when you start chasing too many stocks that happen to be breaking higher.

You want to make sure you’re focused only on the BEST OF THE BEST stocks – both technically and fundamentally.

This is why in my newsletter right now, we’re focused on just seven leading stocks, which is at the lower end of our typical range of 6-12 stocks.

In an indecisive market, you’ll see days where the stocks you’re holding (or the market in general) head down while another stock or two catches your eye by surging higher.  It’s tempting to chase after such stocks, but this is where a trader needs to be extremely disciplined.  Right when you sell ABC to chase after XYZ, you’ll find that XYZ stalls out.

This is a very common occurrence when the market shows signs of choppiness.

The overall health of the market remains in an Uptrend, but the current whipsawing we’re seeing requires strict discipline and tight focus.

In short, the undisciplined trader will get annihilated in this type of market.

 

* You can gain immediate access to the Darvas System portfolio along with exact buy points and sell points with a trial subscription to Darvas Trader PRO.

 

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