How To Catch Market Tops and Bottoms

How To Catch Market Tops and Bottoms

Catching market tops and bottoms has always been a big flex among traders. Not only does it show precision in price analysis, but it also highlights patience and careful attention to detail.

Continue reading this article to learn how to skillfully nail tops and bottoms in charts, regardless of your experience level. It also discusses a few dos and don’ts while hunting them for the best results.

Table of Contents

1. What Are Tops and Bottoms in Trading?

Market tops and bottoms have long been buzzwords in trading communities. However, rookie traders may need help to understand them enough for meaningful discussions. What are these terms exactly?

Market tops and bottoms are the peaks and troughs of significant price moves. The tops are basically the highest points of previous bullish runs, while the bottoms are the lowest points of bearish ones. Provided price moves, both will always be available in charts across all timeframes.

You can also think of them as turning points in price movements. Tops are the transitions from bullish markets to bearish ones, and bottoms are the opposite.

1.1 Examples of Market Tops and Bottoms in Price Charts

You’re not alone if you struggle to grasp market tops and bottoms. Below are excellent examples across various asset classes on candlestick charts:

E-mini Futures 1H Chart

The E-Mini Futures had two major market bottoms on 14 and 15 June, respectively, before two tops that would begin a sustained bearish market.

E-mini Futures 1H Chart
Fig 1. E-mini Futures 1H Chart

PS: Unlike the market bottoms, the second market top broke above the first.

XAU/USD 1D Chart

Despite being in a relative downtrend from April to November 2022, the Gold/US Dollar chart formed significant bottoms that could’ve been exploited intra-day.

XAU/USD 1D Chart
Fig 2. XAU/USD 1D Chart

GBP/USD 1H Chart

Between 21 May to 1 June 2022, the consolidation in the GBP/USD chart produced several market tops and bottoms.

GBP/USD 1H Chart
Fig 3. GBP/USD 1H Chart

Note that not every swing high or low is a market top or bottom, respectively. Ideally, there should be a prior opposing trend. Still, not all the cases eventually panned out.

BTC/USD 15M Chart

Like other markets, crypto charts also have market tops and bottoms, as seen below.

BTC/USD 15M Chart
Fig 4. BTC/USD 15M Chart

CHF Index 4H Chart

Catching market tops and bottoms in instruments with chart gaps is more challenging. Hence, pros only study them during inter-market analysis.

CHF Index 4H Chart
Fig 5. CHF Index 4H Chart

There are several reasons behind such gaps, including less popularity and inactive trading.

2. Strategies To Catch Market Tops and Bottoms

In hindsight, market tops and bottoms seem easy to spot, especially if you’ve never forward-tested your strategy. Trading from them means earning the most (in pips) when the price moves in your direction.

Strategies To Catch Market Tops and Bottoms
Fig 6. Strategies To Catch Market Tops and Bottoms

However, identifying them in real-time is the real pain.

When can you be sure of market reversals? Are there any ideal conditions? What’s the best way to catch such tops and bottoms?

2.1 Technical Indicators

Using powerful indicators is hands-down the easiest way to catch market tops and bottoms, and none does it better than the Top Bottom Reversal Indicator on TradingView.

Top Bottom Reversal Indicator for TradingView
Fig 7. Top Bottom Reversal Indicator for TradingView

The tool does this accurately by combining signals from three high-probability references, as follows:

  • The extremes (overbought and oversold) of the Relative Strength Index (RSI) – <30 and >70
  • A price breakout outside the Bollinger Bands
  • Four consecutive bullish or bearish candles, ending with an indecision (Doji) pattern.

With these confined in the indicator’s complex algorithms, traders nail almost every major top and bottom in the market without a fuss.

Whether you’re a beginner or a specialist, a scalper or swing trader, there’s hardly a better alternative than this.

2.2 High-Impact News Anticipation

Fundamentalists also use news reports to forecast possible market tops and bottoms. Thus, it’s not as straightforward as the Top Bottom Reversal Indicator.

It basically involves analyzing an upcoming (usually high-impact) report to predict the price’s next likely move.

For example, major pairs in the currency market react dramatically to NFP releases. With other fundamental analysis tools, you can nail the high or the low before a strong reversal after the release.

Major pairs in the currency market react dramatically to NFP releases
Fig 8. Major pairs in the currency market react dramatically to NFP releases

Traders can blend it with technical concepts, such as candlestick patterns, for improved accuracy.

Other high-impact events include GDP releases, inflation (CPI) data, earnings reports, and monetary policy statements.

2.3 COT Report Comparisons

The Community of Traders (COT) report has always helped understand market sentiment. However, you can get more precise with it.

A market top will likely form on a currency index when the hedgers keep increasing their short positions while speculators continue adding more long positions.

Conversely, traders expect a market bottom if hedgers continue increasing their long positions while speculators keep adding more short ones.

The results can be mind-blowing after comparing the index chart to strongly linked markets in higher timeframes.

Babypips discussed this in more detail with illustrations.

3. Crucial Factors To Consider When Seeking Tops and Bottoms

Catching market tops and bottoms is always thrilling, no matter your trading discipline & strategy.

You’re entering and leaving potentially profitable trades at the earliest time possible. Thus, there are hardly any downsides if you can constantly do it perfectly.

That isn’t always the case, unfortunately, due to several manageable and unmanageable circumstances. Hence, below are essential considerations if you’re planning to hunt tops and bottoms:

3.1 Patience & Attention Is Key

Luckily, traders only have to wait for the triggers when using the Top Bottom Reversal Indicator. You’ll never miss opportunities through prompt pop-ups, emails, and push notifications within and outside TradingView.

However, any other strategy to catch tops and bottoms demands more patience and attention. You start brainstorming and drawing conclusions as every candle forms.

Patience & Attention Is Key
Fig 9. Patience and attention is key

It can be exhausting and even frustrating to some, but the potential payoff when you get them makes it all worthwhile.

3.2 Don't Forget Risk Management

Just because the Top Bottom Reversal Indicator signals a new entry doesn’t mean you should throw all logic out the window. The markets can always make inexplicable moves, so stick to your risk management strategies for protection.

You can’t even be 100% sure you picked the topmost top or bottom-most bottom before a significant price run until later.

Stick to your risk management strategies for protection.
Fig 10. Stick to your risk management strategies for protection

Calculate the ideal position size; don’t overleveraged; always use a stop loss; ensure you’re taking profits as the price moves.

Having losing days is almost unthinkable if you enter and exit trades from market tops and bottoms. Regardless, proper risk and money management will ensure profitability.

3.3 Moderate Your Expectations

Catching market tops and bottoms won’t turn you into a billionaire or savvy trader overnight. There are consequences for thinking the contrary and trying to overexploit the privilege.

As a beginner, be happy with the little wins. If you’re more experienced, aim for stability and steady equity growth.

4. Conclusion

Delayed trade entries and exits are some of the leading reasons behind lost accounts. Fortunately, traders can prevent them by catching market tops and bottoms.

The easiest way for this is by using the Top Bottom Reversal Indicator asap by clicking here for a special offer. While enjoying the signals, never forget your risk management rules, and only pursue realistic goals.

There are more than enough market opportunities to employ the indicator. Thus, don’t hesitate to share this article to help others on social media.

You can also ask questions, make suggestions, or share your results in the engaging comment section below.

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