Calling market tops or bottoms can be hard and painful as these are counter-trend trades that can easily continue in the original direction. However, entering at market tops or bottoms can also be dangerous if trend trading because in essence you are buying the high or selling the low, which no day trader wants to do. By utilizing indicators that identify when markets are overbought or oversold and then going down in time, day traders can confirm that the market is in fact turning or not, as the case may be.
Calling Market Tops or Bottoms Using Volume Divergence, RSI and ADX
On both the Euro and British Pound we had CONFIRMED volume divergence that was confirmed on the 720 minute chart (Euro) and the 1440 chart (British Pound). The ADX histogram was magenta. RSI was Overbought on the British Pound. In other words, the chart was screaming that these currencies would be going down, a market top had formed. Where you listening?
This would be trend divergence so the confirmation (green checkmark) was extremely important.
Of course, the Scanner highlighted the volume divergence, highlighted the RSI being Overbought, highlighted the ADX values, and when combined, you could visually monitor all the charts and knew the market had formed a top and was setting up for a large retracement. All you had to do was wait for the confirmation. Then what happens?
On the Euro — a downward movement from 1.1430 to 1.1158 — or 272 pips. (4 Entries)
On the British Pound — a downward movement from 1.5762 to 1.5528, so far, — or 234 pips. (2 Entries)
That’s the magic and power of the THD Volume Divergence, THD Directional Volume, THD Trend ATR, THD RSI, and THD ADX indicators when combined. To learn more about Price Volume Divergence and how to identify market bottoms and tops using this concept, download my free ebook.