How to pick trend reversal: Concept of Peak-and-Trough!Technical Analysis: Peak-and-Trough Analysis
This concept of Peak-and-Trough Analysis beautifully explained by Martin J Pring in his book "Technical Analysis Explained".
Excerpts from Martin J Pring book:
"This principle reflects Charles Dow’s original observation that a rising market moves in a series of waves, with each rally and reaction being higher than its predecessor. When the series of rising peaks and troughs is inter- rupted, a trend reversal is signaled. To explain this approach, Dow used an analogy with the ripple effect of waves on a seashore. He pointed out that just as it was possible for someone on the beach to identify the turning of the tide by a reversal of receding wave action at low tide, so, too, could the same objective be achieved in the market by observing the price action.
In Figure 1.3, the price has been advancing in a series of waves, with each peak and trough reaching higher than its predecessor. Then, for the first time, a rally fails to move to a new high, and the subsequent reaction pushes it below the previous trough. This occurs at point X (Read X as F shown in the image), and gives a signal that the trend has reversed."
