A Selling Climax occurs at the end of a down-trend.
The news is generally bad. Ill-informed investors are panicking. They see their stocks falling and falling.
But the professional traders are gobbling up the stok that the mug-punters are getting rid of.
This results in a huge volume of stock changing hands. But the exchange is going from weak holders to strong holders.
The amateur trader is in panic mode. He sees his stock going lower and lower. Then, he sees a sharp mark-down in the shares, panics, and sells.
The professional trader see this as a wonderful buying opportuity because he spots the high, or ultra-high volume, on a bar that closes near the open.
This Accumulation of stock gobble up all the supply provided by the weak holders and no more supply is left. The market MUST go up from here. A Bull Phase is ensured.
By definition a "climax" means the ending of something.
So a "Selling Climax" means the end of a trend and in this case, a down-trend.
And the last down-trend bar must be on high, or ultra-high volume.
It can either be a narrow bar, or a long bar (with a close above the middle). This indicates that there is buying pressure from strong holders that overcome the weak holders (i.e amateurs or mug-punters - aka "the crowd").
The next bar would be crucial. For the whole move to be classed as a Selling Climax, this next bar MUST be up.
The high volume must hapen on an up bar.
To quote Tom Williams:
"True strength always appears on a down-bar"
What is happening is that weak, ill-informed traders are panicking to sell, at the same time the professional traders rush to gobble up all the stock that they can. Once this transfer of ownership happens - a Bull Phase is guaranteed.
The ill-informed traders think, because all the news is bad, and the markets continue to fall, that it is all doom and gloom. It is another classic example of crowd behaviour.
The well-informed trader can read the market and see what is happening. He trades contrary to the herd.
You knew the answer to this question - didn't you?
Tom Williams, long-time student of Richard Wyckoff's principles, explains all the ins and outs of a Selling Climax.
His very informtive work - Master The Markets - explains plainly and clearly all about Selling Climaxes and the familarity that the professional traders have when trading these.
Master The Markets by Tom Williams
You can grab a copy of Master The Markets by clicking on the link below:
For the informed trader, a Selling Climax is easier to spot than is a Buying Climax.
For a Selling Climax, there must be something to reverse, i.e. a down-trend.
And remember - true strength always appears on a down bar.
The bars may be ny time frame - daily, weekly, monthly. It is the volume in relatio to the price spread that is important. The close of the bar must finish near the high for the period.
A Selling Climax may not come alog too often, but when they do - a Bull Phase is assured.