“Paul Tudor Jones once said “I believe the best Money is at the market turns, Everyone says you get killed trying to pick tops and bottoms-Well for 12 years ,I have missed the meat (Trend)in the middle but, I have made lot of money at tops and bottoms”
Paul Tudor Jones is an aggressive player, but also a well planned risk manager. My experienced opinion as a Speculative Portfolio trader don’t have any difference compared to the quote above. In fact majority of our profits came from picking tops and bottoms and not playing around the trend as per conventional wisdom. My firm always plays very aggressive during market turns because of hefty profits made by picking tops and bottoms.
Criticism and Reality of picking tops and bottoms
Critics are quick in pointing out that trading top and bottoms are risky due to high volatility, abnormal market conditions, Liquidity preference etc, all these are valid arguments logically. But my practical experience suggested a different aspect. Yes tops and bottoms are risky only if you’re buying higher in euphoria or selling lower in Panic!
Relax! That doesn’t mean you should always try to pick tops and bottoms ignoring the trend .There is a time for everything as Jesse Liver more quotes “There is a time to go long. There is a time to go short, and there is a time to go fishing!”
Important Points to Note
Few issues in picking tops and bottoms are being right in time and understanding the market psychology behind such formation, Also the most important part is money management.
So here is a Pictorial example of how I did it using Price action and Market psychology. Before that let me point out one thing-You cannot pick tops and bottoms using some mechanical systems, that’s the reason why a lot of market players restrain. It Takes experience, Skill and Intuition to do it :
By using simple Price action along with some intuition on a discretionary basis I was able to catch the top. During the time, it’s also the European sovereign debt issues which gave some insights. Indicators gave real buy signal at this point, but I trusted in Price action instincts went short. And the rest is History!
