Trying to pick out the top of a market, or indeed a bottom, is an easy way in which to lose money when trading. It is a trap that many beginners fall into when they first start trading and it can prove a costly mistake.
The reason for this is that trends in markets that have developed will tend to persist over time. This is particularly true of trends that are set over long time periods. The higher the time frame that a trend exists in, the more likely it is to continue.
However this is not to say that markets will always move in a straight line. Even within a strong trend there will be pullbacks and times when the ‘market marks time.’
For technical traders the relative strength index oscillator or RSI can be used to identify these times. This indicator can be added to the chart of any asset and will signal periods when the market have become temporarily overstretched. It can be used in both bull and bear markets and is often used to time entry points in the market. These points are used to enter the market to book some quick profits before the dominant trend resumes.