Trying to pick the top?

Dec 18th, 2010

Have you been trying to pick the top of this market?

It is human nature to try to pick tops and bottoms in the markets. Most all humans are reactive meaning; they wait for something to happen then try to find the solution. With the markets this is where you wait for the 10 point move up and then you try to pick the top of that move with the thinking of "It went up so far it HAS to come back down??" (Notice the question marks there because you are never sure so it is really a question isn't it?

The problem with that type of thinking in the markets is that thinking is most likely a counter- trend thought because the move is going up so you really should be buying. Those emotions that tell you to try to pick the top of bottom are the same emotions as when you are sitting at the black-jack table thinking if you should bet $10.00 or $100.00 on the next hand. Sometimes you will get lucky and that $100.00 bet will pay off but if you sit there and continually bet that $100.00 you will lose it. We all know that trading is not gambling if you really know how to trade.

In reality you cannot wait for a big move and then expect the same type of move in the opposite direction two minutes later it does not work that way. So if you are trading with the "I hope it does this" or "It has to do this because I say so" type thinking you will most likely be a frustrated trader.

I can say these things with absolute confidence because I have been where you are right now. Trading did not come easy to me it took many MANY years for me to be able to have confidence in myself and what I am seeing on the charts. I spend the time and lost hard earned money for years and years before I became successful with my trading.

** I get off subject so back to the topic of this post***

Looking at the chart in this post you can see that there are many tops and some are minor and some are major. Tops are part of trading but there are different levels of importance to each top in the trend. In real-time it will look like every top is major unless you understand where the major targets are beforehand meaning; if the market has not completed to the target off the last major wave it is most likely not at a major top. We consider the tops that are not at major targets to be minor highs within the larger pattern. How does this help you??????

It will help you in more ways than I can post in this article but the main reason for this article is if we are not at a major top you can have confidence that the prior top will be broken. So how does it help in real-time? So many ways but the main thing is that after the top the market will go down to correct the last wave up so in that correction you are still thinking long and you will not get sucked in short because your mind is telling you we just hit a top. Think about it after the price falls off of a any top the thought that the prior high might be the absolute high or the "high for the next year" or whatever your thought might be.

Think if you had confidence to look for support to buy with the trend instead of fighting with yourself if the last high was the high or not. To the next point..........

Upper targets are levels to look to exit your long and take a break and look to re-enter at a better price. Levels are very important but with the markets there is always the next step because the chart keeps going doesn't it? Yes and this is why the next point is so important.

Once a target is hit it is what the market does AFTER the target is what is most important. This is the education that after a leg is complete you know what the next step of the process is going to be meaning; one pattern is complete now you know what to look for as the market flows into the next pattern. This is important in two ways:

1. The pattern after the last high will tell you if support is holding or breaking. If it is holding and they are bullish corrections then the market will start a new leg in the trend direction.

2. If the bullish pattern fails it will start a new bearish pattern.

It is important to know that at almost every top there will be a bullish pattern EVEN if that is really the top. It is the bullish pattern that fails and when it fails it is still just the very start of the bearish pattern and this is why you should not try to pick the exact top because you will have to sit through the bullish pattern that fails. It will still push up before it goes down and this is where it is best to sit on the sidelines because you will most likely get stopped anyways.

Back to the chart. Look at how many bullish corrections have happened on the 135 min chart in the last 3 months. At every minor top everyone gets scared it is the top so they stop going long (and miss the next move) or worse they convince themselves it is the top for no real reason and short against the up-trend (and miss the next move).

Notice how there are small circles and bigger circles. These are the major and minor waves we are talking about. We have noted every support or bullish correction to all of our members the day or even days before it actually happened. This way our members have a plan and understand that those pullbacks are levels to buy and not get sucked in short........

Happy Trading,

www.eMiniSchool.com