It always seems happen at the exact wrong time, doesn't it? You've been watching for weeks, just waiting for the perfect time to enter a trade. The market finally seems to have enough momentum to keep things going in that direction for a while, which will help your trade along. Then - and seemingly out of nowhere - wham! Stocks are racing in the other direction.

Reversals are a tricky business. Master them, and you can make a fortune. If they master you, they can take a fortune from you. So, the $64,000 question is, how do you know when a trend is exhausted? Is it even really possible to spot a market top or bottom, or are all the gurus just talking hypothetically when they say things are about to change?

The truths of the matter - it is possible to improve your odds at spotting potential reversals. No, nobody can do it with absolute perfection. However, anybody can play better offense and defense with just a little discipline and common sense.

The trick, as today's title suggests, is figuring out when 'enough is enough' for the market.

There are dozens of valid strategies to help a trader figure out how to do just that. Each has its own merits, and its own problems. However, I've found a couple I believe are at least a little better than most of the rest. Both are contrarian indicators, which simply when most investors are highly optimistic and thinking bullishly, then we can probably expect a downside correction soon. Conversely, when the market is collectively pessimistic, and when things just look about as bad as they could, then a bullish recovery may be brewing. Hence, the term 'contrarian'.

The first one is something I'd say most, if not all, of you are familiar with. The CBOE Volatility Index (or 'VIX', for short) is a measure of how volatile investors think the market is going to be over the next 30 days. As it turns out though, the VIX is also an effective measure of fear or confidence.

How does it measure something like this? The formula is complex (and unnecessary to understand), but basically, it's comparing the change in prices of a specific group of (bullish) call options relative to specific group of (bearish) put options. The VIX is just a ratio of the two. When it's rising, fear/bearishness is increasing. When the VIX is falling, complacency and optimism are increasing. Great, but what's that got to do with spotting a top or a bottom? Well, usually nothing. However, when the VIX hits a relative extreme - high or low - it typically does so at the end of a trend, and the beginning of another. As always, a picture is worth a thousand words.

Take a look at the nearby image - it shows the VIX in action. To really illustrate its power, I zoomed out to a weekly chart. For shorter-term timeframes, you can apply the same principles to a daily chart. In any case...

The upper portion of the chart is the S&P 500 (weekly). The lower portion is the VIX (also weekly). The red band lines around the VIX are Bollinger band lines. As you can see, as long as the VIX was held within those band lines, the market's trend was usually persistent and allowed to continue. When the VIX got to the point where it ventured outside of those lines (above or below them), a market reversal was usually in the horizon. The indicator worked both bullishly and bearishly, but was particularly effective at spotting market bottoms.

Perfect? Not at all. Besides, even once the VIX drifts outside the band lines, there's still the question of when it too will stop and then reverse - which is the market reversal confirmation. But still, the visual argument is clear....the VIX can give you an edge.

My other favorite reversal-spotting tool is one a lot of you may not be familiar with - at least not yet.

Ever heard of the CBOE put/call ratio? It's just the day-to-day measure of how many bearish put options traded relative to the number of call options transacted. The theory is, you can get a feel for how bearishly or bullishly the market is thinking based on how many calls are trading on the CBOE versus how many puts are trading. As with the VIX, nominal readings mean little. Only when the put/call ratio hits wild extremes do we need to start worrying about a change in momentum.

I like the premise. Unfortunately, I don't like one of the flaws with the CBOE put/call ratio. It measures the daily option trade volume. But, it does not measure the total 'open' option positions. What's the difference? If you or I bought and sold the same option from each other a dozen times today, every single one of those transactions would show up in the volume total. Yet, the actual risk we would be collectively assuming between the two of us would just be one 'open' option. That's not really a true indication of how bullish or bearish you and I are actually thinking.

As a superior alternative, I like to monitor the International Securities Exchange's (ISE) call/put ratio, which they refer to as the ISE Sentiment Index.

Rather than total trade volume, the ISE's call/put reading compares only the 'open' option positions of investors - and it excludes the market maker positions, since they may not actually reflect true market opinion. The index still seems to be a kid cousin to the longer-standing CBOE put/call ratio, only being around since 2003. However, for obvious reasons, I think the ISE Sentiment Index will eventually uproot the CBOE data as the preferred contrarian indicator.

In any case, take a look at the chart. Once again we'll plot the S&P 500 on top, and the ISE Index below, with Bollinger bands. Extreme readings in this call/put ratio again correlate very nicely with many of the markets tops and bottoms. Though it has generally been useful since its inception, during the 2004/2005 period shown here, it would have easily helped you navigate a very choppy market.

Perfect? Again, no - it never will be. However, it does offer a chance for an investor to do a reality check before making a big decision.

So how exactly can a contrarian indicator work? If everyone is bullish, how can things turn the other way? Or when people are so bearish, how can the market recover so quickly with no warning? Where were those buyers just before sentiment turned so pessimistic?

Think about it like this.....investors rarely think one thing and then do another. More often than not, once they make a bullish decision and have bought a stock (or several stocks), they validate their decision with a bullish opinion. Or in the examples above, they leverage their opinion with options. Point being, they've already put their money on the table. During an uptrend, more and more traders are piling in with their investment dollars, and they too chime in with a bullish opinion afterwards.

Eventually, everyone who was going to buy into an uptrend does so. When this happens, you get the unanimous 'I'm bullish' opinion......which tends to be marked by very bullishly-skewed sentiment readings (a low VIX, or a high ISE Sentiment Index reading). After all, why wouldn't they be bullish? They've got investment dollars at stake.

Now, here's the explanation.....once everybody has already bought into an uptrend, who's left to buy in? Exactly - nobody! There are no willing or interested buyers left. Current shareholders get spooked by the stalled market, and unwind their positions, as well as their opinion. Then, the opposite dynamic remains in effect until the market is essentially unanimously bearish again, and stocks finally hit a bottom. It's an ongoing cycle.

These contrarian tools certainly aren't the only trick in the bag, but I believe any investor can and should keep an eye on these simple yet powerful indicators.