Use the volume and emotion to solve top model

Traders generations of people have been trying to pick the top, they know the profit potential of short sales at the end of an upward trend, but most have failed to predict, because the securities resumed bullish calm and break through to higher highs. This is unfortunate, because the top can be predicted with amazing accuracy, as long as they produce a relatively low price point of technical attributes.

Consider the emotional dynamics on these turning points. Downward trend finally ended, resulting in a higher price range to attract a large number of market participants in the rally. Sentiment rose steadily throughout the transition process, excessive pessimism is first replaced by cautious optimism, then be replaced by greed, leading to excessive bullishness.

This ecstatic state will have the risk of blindness, to encourage the weak hand at higher and higher prices to buy securities, usually it is not pushed to the high resistance of historic highs. At this trend is likely to escalate further, into the outbreak or the climax stage, a warning signal, telling sharp technical personnel, the rally may be coming to an end.

The highest trading volume on the history of the securities will usually appear in the manic phase, the last state to join in a long wait and generate overbought technical conditions, which marks the buying pressure evaporation. In turn, a sharp reversal securities, fell into a trading range, marking strong competitors active selling, and weak hands are firmly grasp, and ultimately provide efficient fuel for the new downtrend.

Distribution pattern

The climax stage is not necessary to top form, but to provide additional support to the top of the process when it occurs. Climax behavior can be deployed in a less obvious way, vertical price behavior does not produce a remarkable number of high-volume printing or no vertical price behavior. In all cases, it is important to note that the upward trend of the last stage is always marked the first stage of follow-up between the trading range, early math and emotional retracement set parameters for the evolution model.

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This is evidence of how clever the art will observe with the evolution of the trading range consistent correlation with the price trend reversal for the first time, looking for trends and selling climax aggressive behavior.Depth retracement may provide additional clues about the future direction of the bearish form, the last rally of 100% retracement of the show First failure Important events often appear in the top.


Let’s look at a historical example. Schlumberger (SLM) in June 2014 rose to a record high, breaking the 2007 high point near 114 points. Its highest volume since the rise of the year, but gains only four points higher than the previous high point, asked 100% retracement of the June trend located wave (red triangles). First failure led to a dangerous signal, tell us upward trend may be coming to an end. As balance volume (OBV) decline had shown stable distribution in September produced a double top bearish mode and the collapse of the securities fell to 18-month lows.

Trends alternating with natural period interval. Although there are technical differences, but we do not know whether it will continue trading range to a new high, the trend remain unchanged, or whether there will be reversed in order to complete the top and start a new downward trend. These binary mechanism tells us to pay close attention to the price and trading volume in the range of development, looking for clues as to provide the data we need to choose the direction and exposure as much as possible ahead of the crowd.

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Short-term admission

Top model segment should be higher than average trading volume, securities and well below the significant support level. Support slight penetration, especially when rapid fluctuations in the trading range is still more likely to indicate predatory algorithm program stops running, rather than shareholders to realize them into a new downward trend of emotional behavior.

You can avoid these profit killers by looking at the relative strength and avoid admission before the cycle in your favor. In addition, when the OBV showed a greater than expected when buying interest, to avoid short selling. The indicator shows a similar pattern and price, with a clear support and resistance, price segments should produce similar OBV segments. If not, the bullish divergence may indicate a bear trap and a short squeeze.

When the subdivision level is not clearly defined, look for low-risk short admission price can be difficult. This encourages short sellers choose from a package of strategies, depending on the number and quality of the support level of functioning mode. In general, when a form looks perfect, this translates into an early position, chasing lower prices when the catalyst is triggered collapse, and fast-moving market securities are not allowed to wait for fall to resistance when the momentum into the awareness of risk .


As another example of a practical, biotech stocks Geron (GERN) in September lifted in quiet mode basis 1.50, up more than 500% in November to enter the climax of a circulation of nearly 50 million shares, a daily average of 250 million shares of 20 times . A wide range of reverse column waving a major danger signal, prices fell nearly 3 points from recovery highs. Securities then carved out a bearish descending triangle pattern, while the OBV is showing the active distribution. It collapse in March, in a trading day fell all the way to the starting point of an upward trend.

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Short focus will fall on the triangle, the top of which is a common model, formed by the two lower high peak selling trend line is determined. From the beginning of December and January in an attempt to rally encountered selling pressure created these high points according to the requirements of the bearish pattern. Although the gap breakdown confirms the downward trend, but unless positioned before the breakdown, otherwise investors almost no way to profit.

Early into the transaction constitutes the basis of the radical policies. In this case, after the third high short makes sense, because Classic mode is easy to identify, it shows a clear trigger price level in the vicinity of the support at 4.25, and you can stop the downward trend set in just above the high point line, the risk is limited to less than a point, unless there is an upward gap shocks.

Bottom line

To the top of the short selling model provides a favorable risk-reward situation, but it is difficult to find a good entry price. To improve the odds by close attention to the development and the relative strength of trading volume, look for selling pressure may lead to large-scale emotional collapse.


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