SPDR S&P 500 (SPY)

[ITMS]

Trade Lesson: One Method I Use To Spot Tops & Bottoms

Many traders will often ask me how I spot market tops and bottoms. This is not an easy process, but there are many factors that go into the skill. One easy to learn factor that almost anyone can recognize is extreme volume around a new low or top. For example, if a trader looks at a SPY chart of the low made on February 9, 2018 they will notice a nice bottoming tail pattern with 283.5 million shares traded that day. The SPY also hit the 200-day moving average that session which is sometimes a supporting factor. That reversal rally that took place that session to massive energy. Remember, the SPY made a new intra-day low at the start of the trading session and then reversed closing near the high of the session in positive territory. That is the markets way of talking to you.

Here is another example, the recent Christmas low. On December 24 (Christmas Eve), the SPY sold off on heavy volume, especially for a half day trading session. In fact, that day the SPY closed right on the low of the day at $234.27. The equity also made a new 52-week low that day and had almost everyone in the market frightened to death. The very next session (December 26, 2018) the SPY traded below the December 24th low at $233.76 before staging a massive reversal day. On December 26th, 2018 the SPY closed at $246.18, now that is some serious price action. The volume in SPY that session was 218.48 million shares. Anytime a market reverses with high volume the equity has a chance to make a significant low. I also had several other factors pointing to a major reversal on that session, but even if you did not know anything else you can enter long trade with a stop below the December 26, 2018 pivot. Traders and investors must remember high volume reversals are powerful and can be often used to spot tops and bottoms. Obviously, there are many more factors that should be incorporated into this, but this is an easy tip to identify for the beginner chart reader.




Nick Santiago
InTheMoneyStocks