Tuesday, May 1, 2012

Climax top

Occasionally, you will hold through a large move that will give you decent profits. At a certain point, you would need to make a decision to either exit or to hold for even more. There have been many times when I have exited at a decent profit and the price has ended up moving beyond my target by many points. I never regret it, simply because a guaranteed good profit is far better than a theoretical great profit with the real risk of losing all your gains.

However, optimizing exits is a very important part of trading and I've been able to approach it from many angles. The simplest way to exit is to wait for a trend termination signal. On a strong bull move such as the AM trend, if you see bars getting smaller (b13-25), there is an excellent chance that the termination will be in the form of a TTR (b33-37). 

When buyers are no longer able to create healthy looking bars, the move is over. If you see three or more dojis in a pullback, its best to exit right away or on the next push.

Barring this, if the price has moved sufficiently through the trendline (b31-47) and especially if the move has its own trendline in a counter direction, there is a very good chance the trend is over and you should look to exit.

While those are great places to exit, sometimes you get what I call an undeserved gain. A push that comes from nowhere (b28-29) and this is a form of climax and you can exit anywhere during the push. Sometimes a climax bar can be a trend bar or two such as b29 and you can easily exit on its close. You can also exit on the first L1 after the climax (below b30). My preferred method is to exit on the push if my original target is close because a climax can quickly turn into a reversal bar.


  1. Hi Cad,

    I had difficulties entering that great early trend move today. Two questions if I may;

    1. I believe you have said somewhere that if there is a very large spike bar early in the day (bar 7 today) if the following bar or couple of bars are not strong reversal bars it is a very good indication of a measured move (length of the move so far) in the direction of the trend, is this correctly understood?
    2. When does the spike end and the channel start today? Does that matter in terms of where to find a safe entry. I was looking to buy the low of bar 13 but did not because it closed at the low and could be seen as a reversal bar. I will however revise my model to be more flexible in this type of strong move. How flexible should one be and what are the circumstances when one should be flexible in this regard?

    Thanks man - your stuff is the best!!

    1. 1. A large BO bar followed by bars in the same direction, especially bars with strong closes are highly likely to give a MM of the BO bar.

      2. Spike ends at the first pullback, which could be an inside bar or ticking below prior bar.

  2. Cad, did you try to enter above b6 bear bar?

    thanks for your help

  3. Hi Cad, I have the same question that Manuel, could you tell why you enter in b6 if it was a bear bar and it was in the middle of the range's day ??

    1. The second fBO of b1 is a high probability setup. Often bar quality can be overlooked in the first hour, especially if other signs of strength (such as being near ema) are present.

    2. OK Cad, thanks very much.