If we know the historical high and low prices, we can avoid buying at the top and selling at the bottom, but it would be even better if we have a method to forecast the next top after entering the long position.
Why Top Forecasting
Every market participant is affected by Greed. When the trader goes long, and the price keeps going up, he will becomes more greedy and hope the uptrend will continue. The market finally reached a top and the price reversed as the profitable trader watches his running profits get smaller. He pounds his fists and gets angry that he did not exits earlier. If he has a top forecasting method, he would have monitor his position closely when price reach the forecast top.
Forecasting Tops from Extreme Lows
The Method: Taking the extreme low price of any futures contract and divide it by 8, call the number x. Add 4 times x / 8 times x / 12 times x / 16 times x to the extreme low price. With this table of price values, draw them on the price chart of the futures contract.
The following is the price chart of Gold, with The Method applied:
Year 2000, low price of 251.61, divide by 8 gives 31.45
251.61 + 8*31.45 = 503.99
251.61 + 16*31.45 = 755.67 and so on.
The next top is forecast at 1701.50
Finally, for Silver, year 2000, low price of 3.61. Each of the 100% moves gives 7.03, 10.53, 14.04, 17.56, 21.05.
The next low price at 8.39, and the corresponding 100% moves give 16.84, 25.28, 33.73, 42.17 and 50.39.
Additional Note on Forecast Top
Price do not move in an orderly manner and there can be many bottoms formed. You can identify bottoms by visual inspection of the price charts. From the identified bottoms, proceed to forecast the top by the method. Just as with the bottom forecasting method, a top is more important when it is confirmed by 2 or more bottoms.
Using a longer term price charts such as daily is better than a shorter term price charts.