How to spot & time stock market tops

Stocks Trading Above 20-Day Moving Average Chart:

This chart is based on the 20-day moving average, which moves quickly. Because it reacts quicker to recent price action, it can be a great help in timing an entry point for a market top or bottom. It does not pin point the day/top, but it does give you a one or two week window of when price should start to correct.

How to Spot and Time Stock Market Tops Conclusion:

As we all know or will soon find out, trading is one of the toughest businesses or one of the most expensive hobbies that anyone will try to master. Hence the 95%-99% failure rate of individuals who try to understand how the market functions, position management, how to control their own emotions and to create/follow a winning strategy.

With more than 8,000 publicly traded companies, exchange traded funds, options, bonds, commodities, futures, forex, currencies, etc… to pick from, its easy to get overwhelmed and just start doing more or less random trades without a proven, documented rules-based strategy. This type of trading results in frustration, loss of money and the eventual closure of a trading account. During this process, many individuals will also lose friends, family and in many cased self-confidence.

So the next time you think about betting against the trend to pick a top or a bottom, you better make darn sure you have waited well beyond the first day you feel like the market is topping out. Stocks trading above the 150- and 20-day moving averages should be in the upper reversal zones and money should be flowing out of bonds and other safe haven/defensive stocks to fuel the last rally/surge higher in the broad market.

Also I would like to note that I do follow the index futures and volume very closely on both the intraday and daily charts. This is where the big money does a lot of trading. Knowing when futures contracts are being sold or bought with heavy volume is very important data in helping time tops and bottoms more accurately.

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About the Author
Chris Vermeulen

Founder of AlgoTrades Systems., internationally recognized market technical analyst and trader. Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. He is responsible for market research and trade alerts for of its newsletter publication. He is the author of “Technical Trading Mastery – 7 Steps To Win With Logic” and has  been featured in Futures Magazine, Gold-Eagle, Safe Haven, The Street, Kitco and dozens of other financial websites. 

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