When you see these tell-tale signs, start placing trailing stop orders below your short term trades and move them up daily. When the market falls, it will fall fast. You only have to look at a few index price charts to recognize that markets fall about three to 10 times faster than they rise. We now simply deal with the reverse. When sentiment turns excessively bearish more and more money builds up on the sidelines.
People throw away their stocks, which creates the smell of opportunity for bargain hunters.
This is especially true when we experience a market decline in times of a healthy economy. A positive shift in perceptions will push a significant amount of cash back into the market. This will create a rally and stock prices advance quickly. However, the key with bottoms is not to fall in the trap of failed rallies. It's tempting to start buying as soon as the market gives any indication of a bottom.