TOPS AND BOTTOMS

The tops of rallies mark the areas of the maximum
power of bulls. They would love to lift prices even higher and make more
money, but that’s where they get overpowered by bears. The bottoms of
declines, on the other hand, are the areas of maximum power of bears. They
would love to push prices even lower and profit from short positions, but
they get overpowered by bulls.
Use a computer or a ruler to draw a line, connecting nearby tops. If it
slants up, it shows that bulls are becoming stronger, which is a good
thing to know if you plan to trade from the long side. If that line slants
down, it shows that bulls are becoming weaker, and buying is not such a
good idea.
Trendlines applied to market bottoms help visualize changes in the
power of bears. When a line connecting two nearby bottoms slants down,
it shows that bears are growing stronger, and short selling is a good
option. If that line slants up, however, it shows that bears are becoming
weaker.
When the lines connecting the tops and the lines connecting the bottoms
are close to horizontal, the market is locked in a trading range. We can either
wait for a breakout or trade short-term swings within that range.
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