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i'm looking for a method / indicator to spot tops and bottoms.
i'm thinking maybe sell volume increases much more than buy volume when price is approaching a top. or maybe the spread tightens. there must be relatively accurate ways to spot tops and bottoms, i will appreciate any pointers or recommendations. thanks.
Can you help answer these questions from other members on NexusFi?
The best way to try to pick tops and bottoms is to first understand market structure. Any indicator that can provide clues to tops and bottoms will also give as many false signals as correct ones. Try defining 5 wave moves, ABC moves, or Market Profile.
Once you have an area in mind, indicators that might be useful for that would be RSI or Momentum, and you would be looking for divergence, where the price continues in the original direction but the indicator starts moving lower.
The best indicator I have seen to truly catch "the turn" is volume on a 1 minute chart, but it is a skill to read that correctly, and I have talked with several good traders here that do not see the benefit of it. And don't need it.
But, if you are newer to trading, trying to catch tops and bottoms is a great way to lose all your money though. There is some false belief that catching that exact moment is the only way to win at trading. You would probably do better buying when you thought it could not go higher, and selling when you thought it could not go any lower.
You don't need to be first to make money, you need to be on the right side of the market. Until you trade big enough to move the market, which for 99% of us is never, let someone else pick the turn and make it happen, then follow them.
There are really many different methods and indicators to do right this job:
- Elliott waves (not for beginners)
- Ichimoku (dito)
- VWAP bands (easier)
- statistics
- Market Profiles
and more.
The main thing to these approaches is always to take the bigger time frame
to get some insight (daily/weekly/monthly) and to break down these to smaller
time frames towards intraday.
I am personally testing two approaches for HiLo signals. This is based on a
combination of indicators and I can see some nice results be it intraday or for
swing trading. You will find the two threads here on futures.io (formerly BMT) searching for the
term typing "HiLo" in the search box.
As these methods are in a experimental state (I do not trade them with real money)
I am hoping to find some more insights. Of course the trading with full margin
and overnight/weekend plus WIDE SL settings is quite expensive.
But be aware - my journey here on this one has already 12 months+ and I
am not finished with the results and rules on two instruments
I would like to add that top and bottom is usually a function of liquidity.
When price is moving in one direction, that means there are buyers and sellers and one side is more powerful than the other.
To stop that direction 3 things can happen:
either no more sellers (or buyers), if the direction is down
or all of a sudden the weaker side starts to get traction, meaning the other side was prepared to reverse the direction beforehand.
or no more participants (this is seen mostly in illiquid markets)
To see this type of liquidity changes it takes a lot of tape reading experience and no indicator is exact. Hence the divergence indicators or the divergence type of reading you see it almost everywhere on the forums.
As a beginner finding tops or bottoms is not the recommended way of learning. Even for intermediate traders this is hard.
i would think it is pertinent to point out i'm trying to better spot tops and bottoms not to jump in, but to jump out of positions. i'm using a couple indicators that spot strong enough trends with an acceptable rate of success, so my entries are ok. it is the exits i'm trying to sharpen, what i have now is price crossing a simple moving average in the opposite direction of my position, so it is a very slow reaction exit. if i could better determine tops/bottoms i would have fractionally larger gains, and it would capture trends that peak faster or over smaller distances (before the sma has moved significantly) so i could have a higher success rate as well.
i will check out the indicators / methods that have been kindly listed. what i use now is the daily average true range over a 6 month period for the symbol, which can give a ballpark approximation of where trends will stop if the price behaves typically (but it does miss all the big runners).
I use a 1-minute chart for trade entries and exits. I like to see lighter volume spikes at a Higher High or Lower Low along with NYSE Tick making a lower High or a Higher Low respectively as a place to look to scale out or close a position.
Can't really call then indicators... The prior advice is very good and effective says you need to see what works for you and your system.
I spent a lot of time on this kind of trading method and my favourite indicator for predictive value is the fib extension. Particularly the 1.618 and 2.00 of any decent swing on any time frame.
When it lines up with a previous support or resistance level it is better again. You can also add RSI to it and look for divergence to develop and those levels.
The only thing is you will get smashed in a strong trending market so it is best used in a contracting or range bound market.
