I agree with Panzerman (above) ... it changes for a huge variety of different reasons at different times, most of them to do with fundamentals, but that doesn't really matter, because you can't do anything about it anyway.
Ditto. Other than "anticipating obvious support/resistance to hold"... most trades are reactive. Size the trade up quickly. Act quickly. Set a stop (mental one OK if you're disciplined to act). It's a waste of time to hope to know "why". IF you get to learn why, it usually won't be in time to do you any good for your trade.
retail has one advantage that the big boys cannot sell what they want in one order they need plenty of orders spread over many hours or even days to accumulate or distribute. If it was not for this simple fact i would not have entered the markets 30 years back.
i have seen two types of tops one type which dies with a whimper: momentum slows down in 3-4 waves each wave of slower momentum than the rest. the other where is dies with bang: where there is huge bar which is the last bar and a top the problem is that the second type of top has the first type contained with it: meaning you get 3-4 waves each wave of slower momentum than the rest and then this huge bang/blast off or huge bar.
Please share examples of these blow off tops in a very liquid market like the ES or Forex. In my understanding is that it takes time to distribute shares / contracts which technically should lead to sideways action (double top, double bottom, HNS, INV HNS) or wedge formation. I understand a market like Bitcoin or some small cap stocks where liquidity is low but in a thick market.... Maybe on the very very short time frames, but I think these spikes are just price hitting a prior level of significance which can be spotted from the chart history.
Thank you for asking a very important question; and a very interesting point i agree they seem to be rare and most tops are of the type one type: a gradual loss of momentum....blow off bottoms are more common than tops because tops do not seem to bring out any urgent action from most traders as compared to bottoms where panic rules; greed is not as much a motivator as fear. in this chart the red trend lines [two examples] mark of blow off bottoms while the blue trendlines mark the tops:these are more gradual; you can see two waves where the momentum reduces and a third wave where the market blasts off. this is usdjpy hourly
Hi padutrader, Tops and bottoms are different because the sentiment shifts. Essentially, at a top, everyone who wanted some has got some. At a bottom, the last of the scared money is bailing out (capitulation). Looking at the last chart, I'd suggest that it's really not a blow off top - just a really nice move that took about 18 - 20hrs from where the red line starts. To me, a blow off top would have included blue bars similar to the red bars just to the left and taken about the same time (4 - 5hrs). ie. a panic to get long before the opportunity vanished. Also, the tops and bottoms tend to be the areas where traders' stops were placed. Big money needs liquidity to get in and out without slippage, so it tends to drive into the stops to get it. Once I can see where the stops are likely to be (took me years of watching the charts), you can guess which way the next move is likely to go. It also provides the clue as to where my stop needs to be and where I ought to take profits. I realise that you know this stuff, I'm just saying that I give it conscious thought before opening a position. Cheers, syntaxfx
i did mention it was not a very good example.....you are right......tops and bottoms are different because most traders do not find urgency in reacting to a market going up while at bottoms there is fear and fear causes urgency to act. why does sentiment change? because those in the position realise the market is not going as fast as it was going before, so they get ready to bail out. the trend is your friend: but what is behind the trend, what is causing the trend, what we see on the chart, is momentum. Momentum is the cause of the trend and is the net effect of the transactions going on, This can be measured. There is a momentum cycle because traders react to what they see on the chart and if momentum is strong they will look to buy.if others are buying it is better we buy too