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Sellingclimax

Reversal Bar Patterns Part 3: Buying and Selling Climaxes In parts one and two (linked) we covered the basics of reversal bar patterns including hooks, pipes, and keys. In this piece we focus on the buying and selling climax. In the final installment we will focus on upthrusts and springs. The patterns covered in this series represent an overt change in the balance of supply and demand. Importantly, very few patterns set up as they would in textbooks or in my examples, but the principles are consistent. Understanding why they occur and developing analysis and trading judgement around them is a primary skill. In this regard, there is no substitute for staring at thousands of bar and candle charts. One of the more important chart patterns is the buying and selling climax (BC & SC). Climaxes are exhaustion/capitulation patterns. A selling climax (SC) develops as weak handed buyers capitulate. Buying climaxes build as shorts capitulate and timid buyers who missed out on the rally are finally induced to enter. Selling climaxes are more about existing longs capitulating and selling. In general, the complete (perfect) pattern sequence consists of preliminary demand (PD) selling climax (SC), minor test (MT), automatic rally (AR) and secondary test (ST). Of the six, the minor test and preliminary demand are optional. For simplicity we will focus on the selling climax. Buying climaxes conditions are the direct opposite with the exception that they tend to occur on lower volume than selling climaxes. Climaxes typically occur in extremely extended markets that have trended a long while. The climax low is often made in conjunction with extremely bearish news flow, dismal sentiment, and a palatable bearishness. Put/Call ratios and other derivative measures are typically at extremes. I begin actively monitoring for the pattern when oscillators reach extreme readings or after a long period of trending behavior. I am more attentive on the second or third foray into oversold/overbought, particularly if there is a pronounced momentum divergence. The appearance of the climax strongly suggests that bad news has already been discounted. Trends are often defined by three successively steeper trendlines. The 3rd and final trendline is often parabolic and defines the terminal portion of a trend. I am particularly attentive for the pattern to develop after the third trendline develops. Climax structures are not created by strong handed/well informed buyers buying the weakness, but by over-levered and poorly placed longs capitulating and liquidating positions as their pain becomes too much to bear. The bearish news also lures in new weak handed/trading shorts, who, trapped by the sudden reversal, are forced to cover. The combination of the two clears the immediately available supply. Once the immediately available supply is cleared, there is not much resistance to the market advancing. In Wyckoff terms the initial rally from the selling climax low is labeled the automatic rally (AR). As the AR develops, shares are often distributed back from strong hands to weak hands. Since supply has been exhausted, the AR can often cover significant ground. Opportunistic short-term buyers of the selling climax often use this rally to sell a large portion of the position built during the climax. Remember that the buyers during the SC are not generally long-term investors but are more likely sophisticated agile traders. They often take advantage of the reaction rally to take trading profits. While climax behaviors often represent intermediate or long-term turning points, they can also represent shorter term exhaustion of the immediately available supply/trend. As the automatic rally develops new supply will emerge. Longs who resisted selling during the sharp decline to the climax lows, opportunistic traders who bought into the reversal behavior and new shorts all sell into this rally. Additionally, strong handed bearish fundamental traders may increase their line. This is why, for a climax to be trusted, there must be a secondary test (ST) that is well separated in time from the initial low. In the weeks and months that follow a weekly perspective SC, the market will test near the climax low. The successful completion of the test generally represents an all clear for longer term positions. The pattern is fractal. That is it shows in all time perspectives. The key is that the secondary test is well separated in time from the climax structure. Preliminary Demand: There is often a sharp rally just prior to the selling climax. Wyckoff labeled this as preliminary demand (PD), a point at which strong handed longs are beginning to accumulate shares in anticipation of a turn. The PD is an alert to begin monitoring for a selling climax. The PD rally should be noticeably stronger than the rallies that preceded it. Selling Climax: Climax patterns are typified by extremely heavy volume, much wider than normal price spreads and typically feature a clear reversal pattern (often a key reversal) bar or bars. There is generally an acceleration of the trend, with wider price spreads and a steeper angle of decline. At one time climaxes were mostly single bar affairs, but now the climax structure often builds over several trading days. Minor Test: In the hours and days after the automatic rally begins, the market will often suffer a setback toward the SC. The appearance of demand on this setback solidifies the odds that the AR rally will cover reasonable ground. In many cases the minor test will only appear on intraday charts. Automatic Rally: In the days following the SC the market will rally sharply. Volume is typically very strong near the beginning and tails off as the rally progresses. The AR often has a noticeably different character than prior corrections in the downtrend in that they cover more ground and volume is better. Distance traveled is important, the greater the reaction after the climax the more significant its implications. Small ARs are not to be trusted. Secondary Test: Selling climaxes clear out the immediately available supply in that price zone. Even short-term climaxes can stall the market for a period of time (think trading range). But they can fail, and when they fail rapidly it is a solid indication of a continuing bear market. This is why climax structures MUST BE SUCCESSFULLY TESTED before they represent anything other than short term capitulation. The test should be well separated in time, and occur on generally lower volume. Selling should be far less intense than on the initial decline. This is demonstrated by the general decline in volume and the angle of the testing decline. In other words, the angle of the decline to test should be significantly less than the angle of the original decline. I prefer to see them play out over several weeks (assuming a daily perspective outlook). Trading Range: Often the test will take the form of a trading range during which strong hands, usually large institutions, accumulate new long positions. In future installments we will cover the analysis of trading ranges. At times the market will make a V bottom with no test. In that case, when the new trend becomes unmistakable, you should begin utilizing traditional trend-based entries into positions. To Repeat: The huge volume and the reversal bar offer a warning that things may be changing. But, without the completed test, a trend reversal is only conjecture. YOU MUST HAVE A COMPLETED TEST before deciding that a low of any consequence has been made. Climaxes are fractal. They appear in literally every time frame. But the larger the time perspective, the more important the climax. It is also worth noting that the notes around sentiment are not particularly meaningful when working in time frame shorter than daily. And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum. Good Trading: Stewart Taylor, CMT Chartered Market Technician Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
ICEUS:DX1!Education
by CMT_Association
3
Ways to improve your chart reading Part 2 – Multiple timeframesThe bigger the timeframe is, the bigger the move it may produce. Therefore, it can be good practice to define the direction of the price and your trading based on where and how things develop on higher timeframes. Another reason to use timeframes with bigger resolutions for the confirmation of your decisions is that a trade setup on one particular timeframe is isolated from a bigger move and may appear while that move is at the end of its correction. For example, it might be that a higher timeframe shows a lot of supply (selling) in the background while lower timeframes show the presence of demand (buying). Usually, in these situations an up move will not continue for a long time and may eventually reverse, locking the trader into a bad position. The 1-hour chart in the picture shows the US dollar/Japanese Yen FOREX currency pair. (FXCM:USDJPY). Wide range bars appear at 15:00 on March 7th, at 15:00 on March 8th and at 02:00 on March 10th, UTC time. According to the VSA methodology, the volume on those bars and their closing prices indicate the presence of supply (weakness). At the same time, the price goes up for some time after each of these three bars. As a result, many traders who are using the 1, 3 and 5-minute charts, where the trend is up, open long intraday positions. With serious weakness in the background as seen in the picture above - when the smart money is selling - the price will usually not go up far and turns down very quickly producing a significant move. This gives the trader the chance to make a nice profit on small timeframes. An example of this kind of opportunity might be seen when an up bar on the 1-minute chart gets closed with low volume at 14:22 on March 10. As in our chart example where it has taken almost 3 days to provide a good setup to the short side, very often it may take time for the trade pre-conditions to develop on different timeframes. An ability to wait until a setup on a lower timeframe is aligned with the strength and weakness of the bigger moves is another good habit to develop. In many cases using a multi-timeframe environment, as well as being patient, helps a trader to avoid losses and improve their profit.
by Trade-to-Win_from_Tradeguider
Lets Talk ARKK Weekly Baby! Capitulation! One of the most important chart patterns is the buying and selling climax. A classic example of the pattern, in the form of a potential selling climax (S/C) is showing up in the daily and weekly charts of ARKK. Climaxes are exhaustion patterns, they develop as the last needful seller (weak hands) capitulates and hits the bid. Sellers are essentially exhausted. 1) Selling climaxes exhaust the available supply and often mark an important change in the market state. a. Even if they don't mark the end of a trend, they often lead to a period of consolidation. It is not unusual to see a trading range develop after the completion of the secondary test. b. Climaxes are fractal, appearing in literally every time frame. c. Climaxes appear after a long period of trend. 2) Climaxes typically appear concurrently with terrible news flow. a. Late last week I overheard an obviously frustrated fund manager on Bloomberg state that "I'm liquidating and going back to the real fundamentals." Down nearly 60% over the course of the last year he, and many other investors were finally throwing in the towel. 3) Climax patterns occur on extremely heavy volume. a. A clear reversal bar (often a key reversal) is typically evident. b. But modern climaxes can take several days to complete. c. Often the liquidated shares are distributed from weak hands, to strong hands. d. The new buyers are not necessarily long term investors and they often take advantage of the reaction rally to take trading profits. 4) There is often a sharp rally just prior to the selling climax. Wyckoff labeled this as preliminary demand (P/D), a point where strong handed longs are beginning to accumulate shares. The P/D is an alert to begin monitoring for a selling climax. In the case of ARKK, this P/D warning did not occur. 5) Immediately following the S/C is the automatic rally (A/R). Since sellers have been exhausted, the A/R can often cover significant ground. Buyers of the selling climax often use this rally to sell a portion of the position built during the climax. 6) In the case of ARKK, there is a micro test of the S/C. The successful test set the stage for the A/R. 7) A much larger secondary test separated in time must be completed before the S/C can be trusted. Its important to note WHERE the behavior is occurring. In past entries, I have talked about building confluences of support and resistance to create zones. These zones can then be monitored for patterns that are consistent with a change in trend. 1) Price is resting at the bottom of both short term and intermediate trend channels. I generally view channel tops and bottoms as more reliable indicators of overbought and oversold than most of the momentum suite of indicators. The two channel bottoms formed a support confluence in the 61.81 to 63.63 area. 2) There is a clear three wave move (A-B-C) that can be used to generate Fibo extension targets. I use the A-B-C pattern to generate three targets, 1, 1.382, 1.618%. The distance is then projected from the top of C. In this case the tool generated equality with the first wave at 63.38. You can use the Trend Based Fib Extension tool in MV to generate the calculation. 3) The three levels (two channels and 1 Fibo) produce a support confluence in the area between 61.81 and 63.38. This is the zone where the S/C occurred. Most momentum oscillators are deeply oversold. I have included the weekly RSI to illustrate. Note the curl higher. Odds are good that the selling in ARKK is essentially exhausted now. My guess, given the broader backdrop, is that it will form a trading range lasting several weeks, maybe months that will allow strong hands to redistribute shares before beginning a fresh markdown. But, opinion not withstanding, I will follow the evidence and clues as they build. Good Trading: Stewart Taylor, CMT Chartered Market Technician Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Editors' picks
AMEX:ARKKEducation
by CMT_Association
92
ARKK Clarification and UpdateAfter reading the comments in yesterday's ARKK post I realized that I needed to clarify the post, particularly in light of what, in retrospect, was an overly enthusiastic title. I had hoped to call attention to the anatomy of an important price behavior that is important across a wide variety of assets and time frames. I also intended to highlight how I use charts to approximate where these structures might develop. Instead I gave some the impression that I thought the selling climax would mark a long term low. That was not my intent. I will be more precise in the future. Finally, while I think ARKK represents a great example of how a selling climax develops, I don't think it's bear market is over. I made that point in the final paragraph. ARKK has a tremendous amount of work to do before the trend could be changed from bearish to bullish. Thanks to all who posted in the comments. There are some great observations and questions. I would encourage you to read them. The community here is (for the most part) pretty cool with many very knowledgeable participants. Clarifications: 1) Selling climaxes clear out the immediately available supply. This does not mean that new supply can't come out. 2) Selling climaxes typically stall the market for a period of time, and often result in a trading range. But they can fail, and when they fail rapidly, which they often do in bear markets, the failure says very bad things about the asset. 3) This is why climax structures MUST BE SUCCESSFULLY TESTED before they represent anything other than short term capitulation. A micro test isn't enough for more than a few days, perhaps a quick trade. This was point 7 in the post. In retrospect, I should have made it point 1. 4) A successful test must be well separated in time from the initial selling climax. I prefer to see them play out over several weeks. 5) In other words, the huge volume and the reversal bar are only a warning that things may be changing. But, without the completed test, it is only conjecture and does not constitute (at least in my opinion) it’s a data point, not a tradable event. 6) In short, YOU MUST HAVE A COMPLETED TEST before deciding that a low of any consequence has been made. 7) I ended the piece by stating that the selling in ARKK is essentially exhausted now. I should have written it…. Essentially exhausted FOR now. 8) Finally, the only reason I monitor ARKK is the individual names in the portfolio. Funds are made up of many individual assets. Individual assets may be in very different positions in their trends than a given fund, index or market. ARKK holds many names that might eventually hold interest for me. A final point, I think the fundamental/macro influences on equity are quite negative (just my opinion, but I am wrong a lot). Given that, its difficult for me to believe that the risk reward for a long position in ARKK is advantageous or that it will survive the testing process. But, I will follow the evidence and reevaluate if a successful test of the selling climax and subsequent bullish behavior develops. Good Trading: Stewart Taylor, CMT Chartered Market Technician Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
AMEX:ARKK
by CMT_Association
5
Paypal Bullish Shark Pattern at SupportWe might see a nice bounce from Paypal within the coming weeks but i don't expect new ATHs i expect a lower low then for it to come back down to make one final lower lower later on but for now i am quite decently Bullish as the MACD is showing Bullish Divergence, The RSI is Oversold, The price is at Old Resistance, and the Volume looks somewhat like a Selling Climax so lets atleast get a correction back up to the $200s then we can talk lower lows if it shows weakness there later.
NASDAQ:PYPLLong
by RizeSenpai
9
Possible beginning of accumulation on AUD/USDHello my beauties. I noticed that the pair has come to a nice selling climax, and given the strength of the AR (automatic reaction) in proximity of the long term bearish trendline that was broken to the upside, I see this as a possible accumulation. Personally, I will wait for a nice spring below the TR (trading range, in red) to enter a long trade and gain some nice profit. We are going to wait for further development of price action to take the trade, and wait for a nice buying opportunity below the bottom red line. If you find this idea to be helpful like, follow, and drop a comment below if you'd want me to analyse a different pair. Consider supporting me if you think I am providing you with value. Peace. Luca, TrickleDownFX
Long
by TrickleDownFX
4
Capitulation! Bitcoin Buy #2 filled.Bitcoin bagholders and gamblers are running for the exits again. All are selling at the same time and the price collapsed very fast. Not much new to say. Let's look once again at past examples. A few pictures are worth a few thousand words. Capitulation of "the bull market is back", the price was down 40% in a single day We can put the 1 hour charts side to side: Next, more recently we can look at the big red candle that eliminated the last 2018-2019 permabull survivors. September 2017 The last big bear market At best a mega rally, at worst 1 year to exit the position with a small win? Yes please. Why would this time be different? 2016-2017... You wished you bought at $200. I don't know what this is, but the selling again is very very fast as opposed to the buying & bagholding Even 2011... Each time of course the volume peaked, no point showing it, sometimes a bit sometimes a lot. It's a miracle! Kraken is responding I was able to buy. You might want to wait for the big green reversal candle before buying, or buy some now, and buy more with the green candle.
INDEX:BTCUSDLong
by MrRenev
3
Why I Often Look at Panics as OpportunityPanic selling and panic buying usually show up at the end of a move. Here I us a simple "indicator" I made to help identify if a move is particularly special. First, I have always like ATR (Average True Range) as a useful reminder of what to expect and at one time I even used it to calculate my position size for risk purposes. I wrote two little hybrids of this just for one bar extremes from the previous close. One is for the buying climax and the other for the selling climax. As I explained in the video, I worked for many years as a "specialist" - or market maker on a stock exchange floor. In this job, I regularly had to buy if nobody else would and take the sell side if nobody else would sell. This typically had me short near the short term highs and long near the bottoms - often not on purpose! But it does explain how the pros are often on the right side at market extremes. Pros do tend to "fade" extreme moves meaning they take the opposite side of panic moves out of experience. As Mr. Buffett says, "be fearful when others are greedy and be greedy when others are fearful" Happy trading, Rob Here is the code for my scripts // This source code is subject to the terms of the Mozilla Public License 2.0 at mozilla.org // © rbarnesy //@version=4 study("LR from Prev close") plot((close -low)/close *100) // This source code is subject to the terms of the Mozilla Public License 2.0 at mozilla.org // © rbarnesy //@version=4 study("HR from Prev close") plot((high-close )/close *100)
NYSE:TYLEducation
by rbarnesy
1
Monero undervalued against ETH and BTC: Accumulation time?Out of all the crypto currencies out there few things have a better use case than XMR. Unless you are some sort of bank robber all the fiat you spend is anonymous because you are not important enough to track serial numbers on. The $50 you got for a gift either in cash or a giftcard isn't tracked in some immutable ledger like bitcoin, it doesn't show up in you bank account, and you don't have to have people wondering why you bought certain things. Why did this guy buy rope all of a sudden? Why is he buying silver and gold? She bought cough syrup, is she really sick? This anonymous value is inherent in paper money and the same value keeps XMR hovering around the 15th position on coinmarketcap as other coins of the moment have meteoric rises to the top 10 and then peter out. Any piece of garbage can go to zero and the bollinger bands would be meaningless. But with something with a real world use case like Monero when something is out of the month or weekly bollinger band it it time to either accumulate or watch for the recovery if you want to be a value investor. This whole thing looks like a set up to a Wycoffian accumulation. So far we have a potential selling climax as well as an automatic reaction. From here value investors would be looking to slowly accumulate as to not pump the price too much and they will be buying the lower part of this formation. The chart below is the great dump bitcoin had in 2018. Price went below the weekly bollinger band and had a selling climax and automatic reaction( I haven't labeled every wycoffian event). One thing to notice is we didn't have a spring (or W pattern) on this time frame. On this chart there was one secondary test and that was it. Monero might have several secondary tests of the trading range and might even have a terminal shakeout. If you don't know what that means go here:https://school.stockcharts.com/doku.php?id=market_analysis:the_wyckoff_method or run the risk of staying poor. Based on this I am looking to be a composite man. I will buy XMR when I see it against any of the bollinger bands on the chart below; Either ETH, BTC, or USD. Since I see eth beating btc over the course of the bull run I will use the ETH and USD charts more than I use the XMRBTC charts. There may or may not be a terminal shake out, I will just have to stick to the plan and accumulate. If history is any indicator when accumulation is done Monero will pump with a fury against both BTC and USD. The chart below shows the accumulation and when it broke resistance there was a massive one day gain in Monero. This chart also shows that Monero is testing previous resistance as support for XMRBTC. Last time it took a year for accumulation to occur for XMRBTC. This isn't a post for traders, this is a post for investors and people with the discipline to act like the composite man.
Long
by This_Guhy
2
JSE:SOL Sasol Selling Climax?Sasol has had a dramatic decline this week. Price has spiked below the downward stride (Oversold line) on the back of the drop in oil prices. Volume has been the highest recorded. This could be a selling climax with a reversal bar indicating the possible start of an automatic rally. The rally should be as volatile as the decline and could close the gap that was formed, taking us back to around R200. This would then define the boundaries of a trading range that should form if one follows the Wyckoff logic. This trading range should take some time to develop.
JSE:SOLLong
by SteynTrade