Traders looking for new market opportunities are continuously looking for price tops and bottoms in an attempt to enter the market at the most optimal time. Tops and bottoms are often perceived from news hits with announcements of new highs or lows where traders may start to study the market more closely.
As prices continue to climb or descend, depending on the direction of the trend, traders line up to short a potential top or buy into a potential rally after a dip in price. Most of the time, however, this is done not by hard statistics or metrics, but based on feel or ‘intuition.’ While this strategy may work temporarily, out of sheer luck, the long-term implications of such a strategy tend to be much more erratic as traders place too much emphasis on feel or emotions rather than market signals.[bctt tweet=”Identifying Directional Reversals Instead of Picking Tops and Bottoms