In the previous article I outlined why top and bottom picking is a topic we inevitably have to deal with as traders and described why it gets such a bad rap. In this posting I will cover off the anatomy of a top/bottom and how to trade it. (more…)

Picking tops and bottoms is a controversial topic. Many trading books and trolls on internet forums will tell you it can’t be done and it is a mug’s game. On the other hand if you switch on CNBC or read any of the market commentary - many millions of words and hundreds of thousands of hours of commentary by different analysts is spent on whether this is the top or the bottom of the market yet. It seems that despite the anti top/bottom picking fraternity, a very large chunk of the trading community is obsessed with picking tops and bottoms. (more…)

I have often seen repeated in a number of different places that markets only trend one third of the time and they range the remaining two thirds of the time. If you are position trading and holding positions for weeks, months or even years, this property of the market does not really create a problem for you. However, if you are frequently trading the market using short term trades, poor trading decisions can lead to a really lack luster performance, with a trader frequently entering into short term trades during a ranging market and they slowly grind their account into a pulp. Whereas a frequent trader who is good at picking the start of trends can make an absolute killing in the market as they spend most of their time riding the big moves in the market. The question comes, if we are trying to time the market with short term trades, how can we do it effectively? The obvious answer is “breakout trading”. (more…)

I think the one of the more influential set of theories you need to understand in order to trade is Dow Theory. Well over a hundred years ago Charles Dow developed a set of indexes that he used to monitor stocks in similar categories: industrials, utilities and railroads. Aside from a name change of rail roads to the Dow Jones Transport Index, these indexes are still in use today. (more…)

Selection of the appropriate trading method for the market conditions is an essential skill for succeeding at trading. Given that trend trading is very popular, I thought I might write a blog entry about how I characterize trends and then select the appropriate trading method. (more…)