How to Trade a Crab Market
By George1Trader - 02-Oct-2023
Traders always get excited when Bitcoin makes a big move. And it’s always painful to see the price reverse the entire move and trade back where it was over the previous days or weeks. Experienced traders are also familiar with the times when they enter a position just to wait ages to see the market hit their stop-loss order and then reverse to trade in the direction they originally planned it would.
Sideways market conditions test every trader’s skills and patience. Most people find it more difficult to trade chop than to trade trends, but waiting for markets to trend can be a hard task. Feeling the need to trade or not being patient enough in those situations can lead to overtrading and revenge trading that result in unnecessary losses.
It’s very difficult for a trader to sit on their hands for weeks or to take much fewer, smaller trades. But the purpose of this blog post is to share some tips and tricks for minimizing losses and maximize wins in sideways market conditions.
What is a “crab” market?
The phrase “crab market” isn’t referring to a seafood vendor.
Most readers are familiar with “bull” and “bear” markets where traders react to upward or downward momentum, respectively. But a “crab” market sees prices start to stagnate around the same level for a longer period of time – the market is not bullish or bearish.
Like a crab, prices are just slowly moving side to side and not really going anywhere.
Why traders struggle in sideways markets.
One of the key reasons traders struggle in crab markets is overtrading.
Basically, overtrading is a condition where someone trades too much and switches ideas or biases too quickly. This happens mostly in sideways markets when there is no obvious trend. Most people want to make money too fast, and they are constantly looking for another trade to do so. This weakness often leads to multiple losses in a row.
A phenomenon related to overtrading is revenge trading. When someone loses a trade and wants to make back the money as fast as possible, they often become emotional and choose to jump into another trade immediately after the losing one without thinking it through or having a plan – they just want to make back the losses.
Almost every trader has experienced these feelings. The next section has some tips for avoiding these mistakes and hopefully saving readers some shekels during their own trading.
Surviving sideways markets is simple!
Here are five changes that could help a struggling trader perform better in a sideways market.
Start with a clean chart. Remove all the levels on a chart, and start over from the higher time frames and work down to lower time frames. Mark out key highs and lows on higher time frames, and see where stop-loss orders could be resting. Starting clean very often gives traders a completely different view of the market than they would have by staring at old levels drawn on their charts.
Stop managing trades. Try to not manage a trade at all between entry and stop or target. Managing a trade while the trade is open is sometimes good – it depends on the trader’s strategy. But more often than not for newer traders and especially in choppy conditions, it’s a bad idea. Especially in choppy times, actively managing a trade will make the trader second guess their positions and flip flop resulting in unnecessary losses. Set a stop and a target, and leave the trade until one of those levels are hit.
Stick to a plan. This may be one of the most important tips in this section. Before entering a position, a trader should already have a plan set for what they’re going to do when something happens. Thinking in terms of “if this, then that” is essential. Having this process in mind will cause less stress and also decrease the urge to second guess and initial trading idea.
Set limits on trading. During a sideways market, setting certain limits on trades and time can be helpful. For example, only look for one trade per day. This will help avoid overtrading and will force a trader to be more picky when choosing trades, which will cause better results.
Trade with lower risk. This piece of advice can’t be said enough. Most people who overtrade or revenge trade do so because they’re emotionally attached to their money. When they lose it, they feel bad. Smart traders will only risk the amount they’re comfortable with losing – not a penny more.
Good traders adapt to the market.
Regardless of whether the market is bullish, bearish or crabish, good traders adjust their plans accordingly. Bad traders try to fight the market and lose money.
It’s okay to lose money sometimes. But if the market is acting differently than a trader expects, they should pause and reevaluate. And if they happen to be on a losing streak, it’s never a bad idea to take a break. Step away from the charts, do something else for a couple days, and come back refreshed with a fresh perspective.
That’s the secret to surviving a sideways market.