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Definition: Choppy Market
It refers to a particular condition of a stock market in which prices of stocks fluctuates highly and it happens in such a way that in the end it closes at almost the same price, which results in no movement of price in either direction. In this condition, the price volatility of most of the stocks is very high, but the overall price movement direction of the market is relatively unchanged. During periods where the movements are very high, there are lots of speculators taking risks, because they know that the movement from the original price won’t be too much in either direction at the end of the day. But it is very difficult to understand and predict such periods. During such periods speculators who are risk seeking can earn a lot of money.
It can last for days, weeks or even months. The term Choppy is derived from a boat’s movement in choppy seas. The boat moves a lot in either direction in choppy seas but in the end there is a very little movement from the shore.
Example: BSE Stock index, Sensex in a choppy market condition can move a lot in to and fro direction i.e. it can go up from 21000 pts to 25000 or go down to 17000, but while closing it will be very near to 21000 pts or no meaningful movement.
Traders apply different strategies to generate wealth during choppy market condition. They try to buy at support prices and sell at resistance prices. To find out the support or resistance price of the underlying stocks they use various stochastic models and generate wealth in choppy market condition.