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Recognizing Market Tops-A Key to Becoming An Elite Trader

Guest post by: Gary Kerkow

Article Overview: If you can recognize when the market has topped, or bottomed, you are well ahead of the game. Some people will say you can not time the market. This is absolutely false. Once you learn to properly analyze the market, you will be able to time the market. This important skill could possibly make you quite wealthy.

Recognizing Market Tops-A Key to Becoming An Elite Trader

How to dramatically improve your overall trading results

If you can recognize when the market has topped, or bottomed, you are well ahead of the game. Some people will say you can not time the market. This is absolutely false. Once you learn to properly analyze the market, you will be able to time the market. This important skill could possibly make you quite wealthy.

Learn about distribution days

One of the best ways to recognize market tops is to properly analyze, and count distribution days. A distribution day is when trading volume is higher than the previous day, and the market either goes down in price, or has very little movement. On a distribution day, I also like to see volume higher than it's 50 day moving average. This definitely tells me big institutions are part of the selling process.

There will always be clues or signs when an advancing market phase is ending. It is important to remember, these signs generally come as the market is still advancing. You can usually tell when market tops are near, because big players such as mutual funds will cause distribution days. After 4 or 5 days of solid distribution, during a span of 4 or 5 weeks, the general stock market will correct most of the time. At this point, there is no way to tell just how far the market could fall. Another important indicator is the action of leading stocks. When they start to break down, it is a major red flag.

This is how great traders analyze market tops



From March of 2000 to October of 2002, the NASDAQ Composite lost 78% of it's value. It fell from 5046 to 1114. As of this writing in December of 2011, the NASDAQ is just under 2300. This does not say much for the failed strategy of buy-and-hold. You need logical trading rules that will allow you to make a lot of money, and at the same time, keep most of your profits.

Five distribution days during March of 2000 signaled the NASDAQ top. Also important is the fact that many leading stocks were showing top signals at the same time. The very best stock market operators went mostly, or all in cash at this time, and retained their incredible gains from the previous 4 or 5 years. They did this by properly analyzing the daily price and volume action of the NASDAQ. It makes no sense at all to watch major profits disappear. Once you learn to recognize market tops, and take appropriate action, your overall trading results will improve dramatically.

In summary



The stock market as a whole took 27 years to climb back to its 1929 peak. As of this writing, in December of 2011, the NASDAQ isn't even close to climbing back to its peak in March of 2000. To become an elite trader with superb results, you need to implement a successful trading plan. A key element to this plan includes recognizing market tops. This is achieved by utilizing proper price and volume analysis. An incredible amount of money has been lost, due to the fact that many traders hang on to their stocks too long. The failed strategy of buy-and-hold was disastrous for anyone who held technology stocks from 2000 through 2002. Many of the top NASDAQ stocks lost over 75% during this time. Learn how to recognize market tops, and take proper action. If you do this well, you could make a fortune in the stock market.

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Article Tags: distribution days, market tops, stock market



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