Tops and Bottoms
Tops refer to a stock price which is higher than nearby stock prices. Bottoms refer to prices which are lower than nearby prices. An ideal strategy is to repeatedly buy the bottoms and sell the tops.
Tops and bottoms are slightly different from highs and lows. When you talk about highs and lows, you typically decide on a fixed timescale in advance. For example, if you are looking at a chart where each candle represents one day, the very top of each candle is the high for the day, and the bottom of each candle is the low for the day. Tops and bottoms, on the other hand, can come at any time. Look at a chart, and look for any price that’s higher than the ones near it, and that’s a top.
There are many chart patterns which are typically interpreted as signals that the stock has hit a top or a bottom. Trade-Ideas searches for the more common examples, listed below, and reports and alert each time it sees one.
Tops and bottoms are notoriously hard to predict in advance. That’s why these patterns typically take the most time to verify. A book describing these patterns will typically show the pattern in the middle of the chart, long after the stock has moved in the expected direction. Trade-Ideas attempts to recognize and confirm these as soon as possible, but these are some of the slowest alerts that we report.
In addition to reporting tops and bottoms directly, we sometimes use these internally. Fibonacci retracement alerts, for example, are based on tops and bottoms. The actual formula for a Fibonacci Retracement is trivial, with one catch. You have to start with the price of the most recent top and bottom before you can apply the formula. Trade-Ideas automatically finds the tops and bottoms for you. We can report these alerts much more quickly, as the alert happens after we’ve had time to identify the tops and the bottoms.
We offer the following alert types which are related to this topic. Click on the icon for a detailed description of the alert, or click on the example link for additional samples of each type of alert.