Tops and Bottoms – Strength and Weakness in Momentum

In moments of great oscillation and uncertainty in the markets, like what’s happening these days, it is ver y much possible to make great amounts of money with oscillation in the short term. But for this to happen, the investor needs to be prepared to identify moments of reversal and continuity in trends.

In this post we will bring you a simple tool, rescued by TranslateStocks as a study and that works extremely well: Tops and Bottoms.

We begin with the definition of a Top. It is the succession of new highs along a few bars, until we have two or more highs followed by lower highs, leaving behind a mountain formation. Now the opposite is true for a Bottom, we have lower lows until they begin to form higher lows, leaving behind a valley formation.

Just by looking at a graph might be an easy way to identify Tops and Bottoms, but since they do not have the same formation, we can see a top formed by 10 consecutive bars, followed by a bottom what only has three bars, and end up giving the same importance to both. This difference between “the size of the mountain” or the “valley” makes a difference, but this order of greatness cannot be observed by looking at a graph alone. So for this, we need to determine rules and have a tool that helps us.

The Interpreter, from TranslateStocks does exactly that. This advanced artificial intelligence robot is capable of tracing Tops and Bottoms automatically and precisely for 500+ stocks every single day. Below is an example of The Interpreter:

When we have a bullish price movement, it’s normal to have Tops in sequence, without the formation of Bottoms, this produces a bullish momentum that’s well-sustained. The first Bottom will demonstrate the weakness of the tendency and opens up the possibility of an unidentified period or a reversal. When the second bottom is marked, we have practically ended the previous bullish tendency and we wait new signals from the graph to determine the next momentum.

When we determine a bearish momentum, the formation of new Bottoms confirms the momentum, and it’s normal not to have Tops during this movement. When the first Top appears, we have a sign of weakness in the bearish momentum, and a second Top will demonstrate an end to the momentum. Just like the bullish momentum, after this sign, we wait for new points of entry based on the graph.

The study of Tops and Bottoms demonstrates strength and weakness in momentums, but it’s not trustable to mark buy and sell points, it only serves to alert the investor that the current momentum is ending or speeding up. Other graphs and indicators should be used to determine the timing of a trade.

To simplify your trading journey, we have developed a machine that automatically calculates and translates technical indicators into useful data and trading signals, every day, for over 500+ stocks.

And you can try it for free today!

 
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