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Ahoy traders! Today I want to share an educational piece on how to trade a selling climax with cryptocurrencies.

Information

There are two different types of climax which are called a buying climax and a selling climax. In this article, I will elaborate on what a selling climax is and how to utilize it with your cryptocurrency trades.

Let’s begin with a question, what is a climax?

Quoted from Investopedia:

“A climax is a market condition that is characterized by escalated trading volume and sharp price movements at the end of a bull or bear market cycle for company shares, an index or a commodity. Climaxes are usually accompanied by extreme sentiment readings, either mass euphoria at market peaks or pessimism at market bottoms.

Market climaxes often occur at the end of long bull or bear cycles as investors presume that the trend presently in place is not going to reverse course in the near term. Climaxes generally result from a last rush of investors who finally buy into a rising market or sell into an ongoing market decline. In both situations, a climax usually signals the end of a long-running market trend.”

In a few words, a climax appears at the end of long bull or bear cycles accompanied with high volume spikes and sharp price movements. This signals the end of a prevalent trend.

A selling climax often appears at a time when overall sentiment is extremely negative, news sites and trading “experts” are painting world ending scenarios for cryptos and it is also pushed down by a strong bearish pressure.

Beginning

(You can skip this part if you know how to setup tradingview)

  • List of things that are required:
  • Trading View account (Tradingview)
  • Time to practice this strategy and basic knowledge of moving averages
  • An exchange account (Binance for example)

Remember! It is a necessity to do your own research before investing in anything!

Steps to start with:

  1. Sign in to your tradingview account
  2. Click chart
  3. Pick a coin that you want to practice with
  4. Make sure you use “Candles”
  5. Go to “indicators” and search for “volume”.
  6. No extra settings required.

Trading

The general strategy for a selling climax is, when the price is pushed down by a strong bearish pressure, to wait until “smart money” enters the market with expanded buying volume and ends up with a high volume bullish candlestick pattern. I don’t like to buy falling knives without having any signals or expanded buying volume that confirms uptrend because then it would just be gambling with your equity.

Learning to trade a selling climax requires patience and effort to use it properly. Once you have learned to trade it, then it can be used with other trading strategies.

Keep in mind that it should not be used as the sole indicator for a trade. The following preconditions are required:

  1. Needs to be in downtrend
  2.  Sharp Decline (sell off)
  3. Strong Increase in Volume

Reversal Confirmations

  1.  Long Wick (Indicates bullish pressure and doesn’t appear every time)
  2. Follow up candle – which often confirms an uptrend especially when it forms a bullish candlestick pattern (such as Hammer, Engulfing, Tweezer Bottoms and Dragonfly Doji) and is accompanied with high buying volume.

 

Let’s take a look BTC/USD on 12h Timeframe

Another BTC/USD Example on 45min Timeframe

The larger the volume expansion, the stronger the bullish reversal will be. The higher volume was during the selling climax, the stronger the bullish reversal should be. This is a good sign of smart money and other buyers entering the market and not wanting to lose a trading opportunity. Keep in mind that even though a selling climax is a strong reversal signal, it is still always good to wait for the next candle as a confirmation and to give enough of reliability of a breakout.

Advanced Version

This is an advanced version which requires mastering and understanding what a selling climax is and day trading strategy that you can read more about here:

BTC/USD example on 45min timeframe

 

I hope this helped you to get an overall view on a selling climax. Generally speaking, a selling climax is a must have in any trader’s tool belt as it may improve trading results and give stronger signals. It should never to be used as a sole indicator, but with other confirmed signals.

Please, if any question comes to your mind don’t hesitate to ask! I try my best to respond ASAP!

If you need help with trading, finding information or courses let me know and I’d be more than happy to help you!