Adapt Your Trading to This Choppy Market

One of the keys to professional trading is flexibility. The market changes frequently, and often rapidly, and your trading career will be cut short if you can't recognize and adapt to those changes.

Within this dynamic, volatile environment, my goal is to pick out the highest-quality, most predictable trades. So a lot more of my time is spent in preparation -- tracking the patterns and the changes I am seeing in the market -- than actually trading. And lately, I have noticed a few changes in the market that have caused me to adjust my trading approach.

Choppy Waters

The first change is one that has developed over the last month or so: a general choppiness. If you look at a chart of the Nasdaq Composite for 2006 to date, it's clear that the index really has gone nowhere for the last couple of months. The Nasdaq has been stuck moving back and forth within a fairly narrow channel between 2325 and 2230. The Nasdaq 100 Unit Trust (QQQQ - commentary - Cramer's Take) has been moving back and forth between $40 and $42. We haven't been getting many steady trends.

When I see that kind of choppiness, it tells me the market has not reached any kind of consensus. With earnings season over, we lack that catalyst to drive the trading. So far, we have lacked enough optimism about future growth in tech stocks to pull the bulls in and help the Nasdaq follow the Dow to higher highs. And there is a lot of skepticism out there about interest rates, housing, earnings next quarter and pressures on the consumer. There has been real uncertainty out there about the bigger picture.

Tougher Trading

What do I care? I'm a daytrader. Why would someone who operates in such a short time frame care about the bigger picture? Well, the market tends to move in cycles. When we have a catalyst and the market has reached a consensus about it, things will start moving steadily in one direction. The intraday action then will tend to fall into more predictable patterns. That makes daytrading a lot easier.

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Ken Wolff is founder of MTrader.com, the first educational daytrading site on the Net, and co-founder of InvestingOnMomentum.com, a Web site devoted to short-term potential for retirement accounts. TheStreet.com has no affiliation with InvestingOnMomentum.com, and no endorsement of InvestingOnMomentum.com or momentum trading is intended. At the time of publication, Wolff had no positions in any of the securities mentioned in this column, but positions may change at any time. While Wolff cannot provide investment advice or recommendations here, he appreciates your feedback; click here to send him an email.