Is it Possible to pick Bottoms or Tops - consistently?

[nulla nulla]

I don't think this is the case. I think most traders tend to breakout trade, swing trade established trends or at least the first pullback on a new trend, or trend trade. I don't think many are swing trading the trading ranges. In my opinion the bottom is a trading range almost always in big stocks (small volatile stocks like speculative mining companies play by different rules). It's not picking the absolute bottom, it's picking the trading range that is the bottom. It's a "range" not a particular price. That's a longer term perspective. You add the stock to your watchlist and come back to it later.

Getting a risk/reward ratio more than 1:2 is hard in an ordinary consolidation after a downtrend. There will normally be certain indicators of a preliminary bottom (I don't want to talk about what, it may sound like advice), a test of the preliminary bottom and then after that the bottom is established. The further the trading range progresses, the more dangerous it becomes. It often will start to perform the triangle pattern (which is a symptom of supply and demand, the pattern is just some way people like to define it - but it often leads them to error in my opinion). If you do it at the start though you're buying on the preliminary bottom to take advantage of the inevitable rally that will follow. That rally will come crashing down to test that bottom and then most people get in trouble... they enter on the test without knowing if it carved out a bottom or not. They enter, then perhaps the stock comes up a little, and goes back down even below the preliminary bottom... then some people as you say buy more then they end up having more capital tied into a trading range that may or may not actually be the bottom. I don't think averaging down is a good reason since it often means you made a mistake if you had to do it.

I think most traders average up, not down. You can only average up in an established trend though. I know of no way you can pyramid in a trading range (unless it was a huge trading range spanning years, so much so that one leg of it is really a new bull trend and the leg down is a new bear trend).

With respect your response only reinforces the differences in perspective. Also I can't see any reference to risk reward 1:2 in the replies referred to in my post. I am not aware of any requirement that traders only take trades where the risk/return ratios are 1:2. The short term trader is trading the "range" that is made up of short terms tops and bottoms. Traders big and small often take trades that they consider to be low risk, getting small returns on their capital, on the basis that the cumulative profit on their trades makes it worthwhile.

 

[CanOz]

Regarding v bottoms and tops, they are much less common than double bottoms and tops, that's what I meant...

Here is an explanation for those wanting to know what we were referring too...

http://http://www.chartsecret.com/content/how-trade-v-bottom

 

[craft]

I can’t.

Perfecting picking tops and bottoms and the instant gratification from getting it right attracts so many that it leaves other approaches uncrowded and far easier to compete in.

 

[So_Cynical]

It's not picking the absolute bottom, it's picking the trading range that is the bottom. It's a "range" not a particular price. That's a longer term perspective. You add the stock to your watchlist and come back to it later.

At last i have found something we can half agree on (pretty sure that its not going to happen much) fact is that im more interested in the bottom end of the range than the bottom, its like a high percentage of success level, but the upper end of that range is always a particular price, usually a proven price point like the June/July 2012 example below.

Buying bottom within 1 or 2% can be a consequence of attempting to buy the very bottom, as has happened to me several times (see below) picking intermediate bottoms can also be helpful to a portfolio builder such as myself...the tops don't matter as much if you are going to hold onto some shares for yield and cap growth.

----

5 year chart for BPT below with my buying (green) and selling (red) and a clear long term up trend, last couple of years that up trend has flattened but a long term up trend none the less. Back to the point of this thread...bottom/top picking cannot be done with any consistency, i have done it and posted it in EOD real time on this forum and it was luck.
~

 

[Valued]

With respect your response only reinforces the differences in perspective. Also I can't see any reference to risk reward 1:2 in the replies referred to in my post. I am not aware of any requirement that traders only take trades where the risk/return ratios are 1:2. The short term trader is trading the "range" that is made up of short terms tops and bottoms. Traders big and small often take trades that they consider to be low risk, getting small returns on their capital, on the basis that the cumulative profit on their trades makes it worthwhile.

You didn't refer to 1:2. However, you need to have around a 1:2 risk ratio at least OR a very high win ratio. Either will turn a profit. 1:2 ratio means a win rate of 33% or more to break even but when you factor in commission, funding costs and costs of trading such as data fees, software, books and subscription services etc, you need a higher win rate than 33% to even have it worth your time. Since most people have win rates around 45% - 55%, 1:2 is an ideal ratio. If you're Jesse Livermore in his bucket shop days, who it's been said had a 70% win rate, you could take less than this since your win rate is high enough to offset it.

Are there people taking less than 1:2 ratios? Are they profitable? Perhaps high frequency trading computers will do it, but they have edges people don't and their win rate must be sufficiently high to compensate.

 

[Julia]

5 year chart for BPT below with my buying (green) and selling (red) and a clear long term up trend,

Can you explain why you've sold when the stock has been in a strong uptrend? I'm interested to know the basis of this strategy.

Re above comments by others about picking a bottom, the present correction might be an opportunity to show the forum how this can work? Anyone up for doing this?

 

[tech/a]

Can you explain why you've sold when the stock has been in a strong uptrend? I'm interested to know the basis of this strategy.

Re above comments by others about picking a bottom, the present correction might be an opportunity to show the forum how this can work? Anyone up for doing this?

Sure.

But firstly I think I got the top pretty spot on.
Weeks ago.

https://www.aussiestockforums.com/forums/showthread.php?t=17461&page=81
Post #1615
#1619

 

[qldfrog]

Can you explain why you've sold when the stock has been in a strong uptrend? I'm interested to know the basis of this strategy.

Re above comments by others about picking a bottom, the present correction might be an opportunity to show the forum how this can work? Anyone up for doing this?

based on my p/e view and general feeling of the economy I would say reaching levels around 4800 or so maybe down to 4400 in let's say april before it becomes a buyer market again, valuation as they are now make no sense
If we reach these levels, i will be interested in any analysis etc to determine when to get back in.

 

[tech/a]

Re above comments by others about picking a bottom, the present correction might be an opportunity to show the forum how this can work? Anyone up for doing this?

Julia to me its not about picking a top or bottom a month or so out-----BUT
Recognizing when price action is indicating strongly that a top or bottom is
forming.
(1) To possibly take profit or
(2) Open a new position with minimal risk.

 

[CanOz]

Sure.

But firstly I think I got the top pretty spot on.
Weeks ago.

https://www.aussiestockforums.com/forums/showthread.php?t=17461&page=81
Post #1615
#1619

I hope this isn't a top....

Are you saying its top Tech?

 

[beachlife]

Sure.

But firstly I think I got the top pretty spot on.
Weeks ago.

https://www.aussiestockforums.com/forums/showthread.php?t=17461&page=81
Post #1615
#1619

LOL - firstly you covered yourself by using words such as possible and likely, but also you made the call just days before a bottom that was the start of a rally that took out the Nov high on both the FTSE and DOW. The DOW even went on to make a new record high. Great call.

Any posts from Jan calling those highs? Any trades where you traded them?

 

[tech/a]

LOL - firstly you covered yourself by using words such as possible and likely, but also you made the call just days before a bottom that was the start of a rally that took out the Nov high on both the FTSE and DOW. The DOW even went on to make a new record high. Great call.

Any posts from Jan calling those highs? Any trades where you traded them?

View attachment 56667

Ahhh selective quoting.

While it is likely that we have a smallish bull move I think it more likely we will have more of the same with a longer term bearish bias.
technically there is little to look forward to on the long side.

So If I selectively quote from the same post its SPOT ON.

See when I start a thread like this I personally think I have something to offer.
I wait--see---and when I see something of this quality my reaction is

Why the hell bother!!!

Nothing added to help others just tall poppy syndrome.
Like a Poodle barking at a German Shepherd.
Nothing to add but noise.

CAN

Highly likely.

 

[So_Cynical]

Can you explain why you've sold when the stock has been in a strong uptrend? I'm interested to know the basis of this strategy.

See quote below.

the tops don't matter as much if you are going to hold onto some shares for yield and cap growth.

I still hold a few shares in all 3 parcels, i call the portfolio "buy and build" the idea is to recycle capital as quickly as possible but to always leave a little in, approximately equal to the open profit before exit...by repeatedly doing this i build a long term, cheap position in a stock and get a great % return on original investment.

Do i wish i had held on to all the shares...hell yes, but then i wont have capital to recycle.

---------------------

Re above comments by others about picking a bottom, the present correction might be an opportunity to show the forum how this can work? Anyone up for doing this?

Not yet for me...besides i don't have any cash other than 5K in my IB account, have my eye on a couple of stocks but will hold off a bit, so often im in way to early and that has played out as an opportunity cost of significance.

 

[Julia]

I still hold a few shares in all 3 parcels, i call the portfolio "buy and build" the idea is to recycle capital as quickly as possible but to always leave a little in, approximately equal to the open profit before exit...by repeatedly doing this i build a long term, cheap position in a stock and get a great % return on original investment.

Do i wish i had held on to all the shares...hell yes, but then i wont have capital to recycle.

Thanks for explaining. Obviously I respect your decision but find it difficult to understand why you'd pull money out of a strongly rising SP just to adhere to a principle of 'recycling capital'.

Unless, of course, you intend to place the withdrawn profits into something with an even stronger uptrend.
Again, no wish to expect you to divulge detailed info but was that the case in this instance?

 

[Julia]

Re above comments by others about picking a bottom, the present correction might be an opportunity to show the forum how this can work? Anyone up for doing this?

based on my p/e view and general feeling of the economy I would say reaching levels around 4800 or so maybe down to 4400 in let's say april before it becomes a buyer market again, valuation as they are now make no sense
If we reach these levels, i will be interested in any analysis etc to determine when to get back in.

Thanks, qldfrog.

Julia to me its not about picking a top or bottom a month or so out-----BUT
Recognizing when price action is indicating strongly that a top or bottom is
forming.
(1) To possibly take profit or

Not looking for calls for top.

(2) Open a new position with minimal risk.

Not sure whether that's a 'yes' or 'no' in terms of my original question of was anyone up for calling a bottom in this present correction.
If you could clarify whether you're happy to tell us when you are up for opening a new long position "with minimal risk", that would be much appreciated. I have no expectation of predictions, but rather your call when you believe an optimum time for entry is reached.

Again, as always, no expectation of anything from anyone. Just interested to know how people reach the conclusions they do and for an expansion of comments earlier in this thread.

 

[Valued]

If you pick a top on a monthly chart it's kind of irrelevant if the market than rallies on a weekly chart. You have to pick tops and bottoms and compare within the same time frame.

 

[beachlife]

Nothing added to help others just tall poppy syndrome.

If anyone else had of called a top weeks after it appeared on the chart, you would be the first to call hindsight.

Then if time went on to prove they got the call wrong, you would be all over it.

A general statement that the market may be bearish would have been met with it being irrelevant to picking tops and bottoms and a no brainer with QE easing in the back ground.

And of course a statement by anyone else claiming the ability to
Recognize when price action is indicating strongly that a top or bottom is
forming.
(1) To possibly take profit or
(2) Open a new position with minimal risk
would have been met with demands for real time screen shots and broker statements.

Tall poppy - no - just expecting you to adhere to the high standards that you set for everyone else.

Help for others - highlighting that anyone claiming to be able to pick tops and bottoms are full of crap in the hope that a newbie isnt temped to try it.

Anyway I'm watching the competition thread with interest to see just how a tall a poppy you are. Havent seen any 'weeks wages in a few hours' yet.

 

[burglar]

... I still hold a few shares in all 3 parcels, i call the portfolio "buy and build" ...

When first I saw the chart I thought "WT?"

But then it dawned on me that you do the "low cost averaging" strategy.
By the way this is a strategy any newb can Google and learn from.

 

[Wysiwyg]

It is true that a top or bottom is not known in any time frame until after it has happened. In my experience, picking tops or bottoms consistently is not possible. The first sentence gives a clue. Going with the trend and trading less frequently allows less exposure to risk, less brokerage fees and less lifestyle disruption.

As far as picking trend reversals (bottom), short covering rallies are worth a look like this one "developing" (loose terminology) on the DOW now. The bears should be well fed and the bulls mighty peeved after the recent selling spree. Does this happen consistently? The market makers would not like that because everyone would know when to enter. Remembering the market exists because 90% of traders fail to profit consistently.

 

[DrapSnagon]

I had the pleasure of spending a couple of hours watching Jimmy Carr last week in his first Australia tour, for the pittance of $73 including booking fee. Google him. He is a very funny man who makes his living from exquisitely delivered profanity and describing body fluids.

His best joke of the night was his cleanest:-

"I have a special way of working out whether your house is haunted or not.

It isn't.

Grow up"​

This thread needs to learn from that.

Almost randomly, I culled these sentiments from it so far:-

• every now & then
• i've heard this sort of thing
• you will never find it
• all down to luck and probability

Does that fill you with confidence?

Several of you have skirted around the important bits of the argument, and the rest ought to take notice imho. Trade Management is everything. Nobody will ever pick tops and bottoms consistently. Ever. The best that the very best trader will ever do is figure out when an extreme is approaching, and either get in or out close to that number. Stocks, indices, commodities, exchange rates, whatever. Doesn't matter. That truth remains just as true.

The people who make a career from this game (not just a few bucks or a few fortunes along the way) are those who rigidly control their risks and have thought beyond the binary win/lose equation. They dribble money at a winning trade until it stops being profitable, and bleed money from a losing one until it again becomes attractive to others. They never ever bet the farm on a single play unless they're Nathan Tinkler or an idiot or both.

I saw a Substantial Shareholder notice from Blackrock [or maybe Kinetic?] recently that graphically described their approach to this issue. If somebody is interested, I'll dredge up my notes and tell you who the target was.

If you want to deal in certainties, you won't be reading this at all, because you'll be on a beach in the Seychelles having fun, enjoying your monthly cheques from some term deposit or equivalent. If you ARE reading this, you're involved in risk management whether you like it or not. You need to understand it. Either that or you're just sick of Keno and there are lots of us who would be pleased to relieve you of your remaining savings.

Snap