One of the most difficult tasks in trading is picking the turns in the market. Catching the exact end of a rocket rally or that falling price knife is an almost impossible task. A high priced stock, commodity or currency can always go higher.
Discipline is critical to avoid the gamble of attempting to predict the reversal because of emotional thinking.
Don’t think that prices can’t go any higher or lower, because they can do anything, logic be darned.
How to Pick the Bottom in Any Market
A simple technique to buy the turn higher from the low, is to wait for a failed double bottom. If you take a look at the image below, prices fell to annual lows with an extreme bottom (1). A subsequent five session bounce to a higher price (2) stalled and approached the bottom but did not break below that base. New higher lows (3) formed that double bottom.
The buy trigger in the 1, 2, 3 formation is a push above the high (2) inside the double bottom. Buy when that peak is exceeded with a protective stop loss exit at the bottom (1).
Easy as 1, 2, 3 Top
The top turn technique looks for a failed double top. The sell trigger is the decline below the low (2).
The 1, 2, 3 top places the protective stop loss right above the record high (1). The difference between points 1 and 2 determines the intended exposure. Make sure that dollar amount is appropriate for your personal risk tolerance.
It cannot be overstated how important a plan is to investment success. Use the 1, 2, 3 strategy to trade that top or bottom with discipline.
