Finding tops and bottoms in Forex might sound risky, but catching tops and bottoms is not difficult—it all comes down to patience. Why do I say this? Let’s break it down in this article.
Key Mindset
First, let’s establish a shared understanding: in technical analysis, whether you trade with the trend or against it, both approaches are valid, each with pros and cons. They are equal in value, and we avoid bias towards any particular style. As discussed in Trend and Yin-Yang Theory, maintaining objectivity and balance keeps your trading psychology clear and prevents ego from influencing decisions.
Tips for Catching Tops and Bottoms
1. Wait for Price to Test the Level
- For a real reversal, prices usually return to the suspected top/bottom to test it at least once before confirming the level.
- Patience is key. Wait for the test signal before entering.
- Recognizable patterns include double/triple tops or bottoms, head and shoulders, or inverse head and shoulders.
- Even if the price looks ideal for selling/buying, wait until the market shows fatigue. This approach may not get the exact extreme, but trading with a basis is safer than rushing.
2. Apply Multi-Timeframe Analysis
- Multi-timeframe analysis gives a complete view of price action.
Example for trend-following traders:
Large timeframe: Uptrend- Price pulls back to support on the large timeframe
- Switch to smaller timeframe: Look for bottom patterns to enter BUY (double/triple bottom, inverse head and shoulders)
This is not “catching a falling knife.” You know where the price is in the bigger picture, controlling risk effectively.
3. Have a Clear Plan
- Plan each scenario with your own set of strategies.
Example:
- H4: strategy for key levels
- H1: entry points
- M15: additional setups
You don’t need to predict everything; focus on familiar scenarios and execute decisively when signals appear.
4. Be Patient Until Exit Points
- Stop loss: signals your analysis was wrong
- Take profit: where the market has fully reversed
- Managing profits is psychologically harder than losses, requiring practice. This step is essential for a trader’s growth.
See also: How to Set Stop Loss and Take Profit
5. Consider Volume Signals
- Volume provides confirmation of market movement.
- Examples of top/bottom setups with volume are detailed in 31 Essential Volume Patterns.
6. Continuous Practice
“All theory is gray; only the tree of life is green.”
- Mastery comes from real-world trading and consistent practice.
- Top/bottom identification requires time, repetition, and practical experience.
Real Trading Example
- Pair: EUR/CHF
- Date: October 27, 2017
- TF M30: Price rebounds from lower resistance to mid-level resistance; clear downtrend → look for a sell zone.
- Switch TF M5: Wait for a reversal pattern → Inverse Head & Shoulders forms → Enter SELL at right shoulder.
- Price tested the top once and then fell sharply.
- Following the system fully could have captured more, but early entry still netted ~40 pips in a short time.
Conclusion
Catching tops and bottoms requires patience, multi-timeframe analysis, a clear plan, volume awareness, and consistent practice. It’s a skill that can enhance any existing trading system.
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