Volume Climax
Volume Helps Identify Reversals
Various price patterns can
alert us to potential reversal candidates. Trendline Breaks, Support and
Resistance Levels, Fibonacci Retracement Levels and other price information
are valuable in determining a change in direction for a security. However,
one of the most overlooked chart patterns that help us determine reversals is
not reflected in the price itself. Volume climaxes are easily identifiable
and valuable in assessing a change in market sentiment.
A climax occurs when a
market has been trending down (or up) for an extended period of time. As
price nears a significant level (support, 50% retracement level, etc.) volume
will increase until price reverses, and then we see volume steadily decrease
as the sentiment shifts from the previous trend.
Securities that tend to
exhibit clear volume climaxes will continue to follow that tendency. If you
find a security that reverses with easily identifiable volume climaxes, flag
it and continue to check on it to see when the next climax is forming for an
early indication of a trend reversal.
As you prospect for
reversal candidates, watch for volume climaxes forming to help you confirm
the validity of the reversal. If you can find a volume climax accompanied by
support/resistance, breakaway gap or trendline break, you have found an
excellent trade opportunity.
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A Volume Climax for
ABS signals the end of the downward trend
Household Internat
Inc shows the end of a selloff coincides with a Volume Climax.
Once sellers are
exhausted, buyers can easily move a stock as we see on SPC
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