Spotting a top
When I was a gunslinger trading Futures at Tower, being laser quick was the call of duty. It was how we made, and lost, a lot of money. We lived and yet often died by the proverbial sword. Many a time I saw traders get carted out 3 days before Christmas without a job, hope, or future. No heartless pun from here because their dreams were in tatters. To be fair i wasn’t the quickest at speed trading news and data so I slipped deeper into technical set ups. Here’s my old desk and it takes me back to the chest beating bravado and a little organised mayhem thrown in.
My students often ask me what is my edge, and how can they get it to make lots of money. The truth is I don’t know – it just comes. Like every good sportsman I like to think of myself as an all-rounder. Part news poacher part attacker. Disciplined but not risk averse. I can read the charts and filter the fundamental noise. I define my risk and know when to stay out. I know what the market is focused on most of the time because I ask myself every morning and sense check it every evening. I do it every day and so should you.
Finding an edge is difficult. Things change and so do markets. As touched on before one of the skills I’ve learnt along the way is learning how to understand and read a market. Especially, how to identify a top. This is what look for because it works for me. It is so simple you could miss it. I missed it for years, until a technical spot mentor schooled my weary head.
Ask yourself the following:
After a huge move trending up (like the recent one in EURUSD) is PA still making higher highs and higher lows ?
If not then is it making lower highs ? If yes then……
Is it above or below 100 and 200 Moving averages ?
Is it finding resistance at a previous big level ? Remember that 1.2040 is a level I’ve liked for a while but in intraday it is respecting 1.2025. So with that in mind is capping there ? I would look for a close in our current session under this level.
So are we topping on EURUSD ? In my opinion not yet but capping and closing under 1.2025 will be a good start. Don’t forget how far we’ve come.
I hope this helps.
EURUSD
Philosophy: "Define your risk, only then can you ignore it"
Read how Patrick got into trading here
- How to trade: A LEVEL - August 4, 2018
- USD mixed – a bit like me - June 5, 2018
- What is the market focused on ? Over to you trader. - May 29, 2018
Enjoyed this post. The analogy to sport is a good one. It’s hard to define what makes a good player ‘good’ sometimes, as it is an amalgam of a number of important parts, most importantly (it seems), experience.
Thanks Joshua
I’m glad you found it helpful !
Cheers
PAtrick