Find the Reasons That Shows the Market Has Hit an Extreme
We all have our favorite technical indicator that allows us to identify market extremes. There are number of factors that are often cited as indicative of tops and bottoms. Following are two signs that shows market has hit the extreme:
It is said that the price reaches a new extreme, but a momentum oscillator such as RSI does not. RSI is one of the most commonly used technical indicators. It allows you to compare the size of up moves with that of down moves during a specified period. It also indexes them to a scale of 0 to 100. Experts have compared the 14-day RSI on the day of a price extreme with its high or low of the prior 20 trading days.
This is often thought that volume picks up after market tops as investors start to rush for the exits. On the other hand, conventional wisdom suggests that bottoms are formed as selling reaches a crescendo, after which markets start to rise on lower trading volume. The experts compared daily volume on the day of a market extreme with its average over the prior week, month, and six months. Analysts also compared volume in the week prior to the extreme with that of the week after.