Thread by @swing_ka_sultan

Thank you everyone for participating in the poll. As expected most people do not believe that it is possible to catch tops & bottoms, & they are not entirely wrong. I will love to share my opinion on this subject as well.

I believe it is possible (1/n)

to catch tops & bottoms though not in every stock. But many stocks often show clear signs of top & bottom formation and I myself had caught many tops in past, but as I was never been interested in bottom fishing, I never tried to buy at the bottom.

Catching Tops & Bottoms (2/n)

is not possible with trend trading technique, because by defination, trend is an established direction in which the price is moving. And because you need an established top or bottom to assume trend reversal, hence making trade decisions at extremes is never possible. But (3/n)

with mean reversion techniques we can do this. We can sell at the Top using the signs of demand exhaustion, and the most powerful among them is Climactic Action. Climactic action is quite evident in the chart, primarily it represents extremes of either greed or fear in the (4/n)

market, and such extremes never sustain.

So, what are the characteristics of a climactic action? The first thing to look for is to see is whether we are dealing with a newly acquired trend or a prolonged uptrend or downtrend. Climactic actions appears in prolonged (5/n)

trends, not in newly acquired trends.

Coming on to the second thing, it is to see whether we have a very optimistic view about any the stock? Is most people who bought early are sitting with hefty profits and novice traders are suffering the FOMO? There should be (6/n)

optimistic news & view all around about the stock & its sector/industry.

Now let us shift our focus back on charts. The third and most important thing is, is the stock suddenly started accelarating in the direction of the trend? The angle of trend will become steeper (7/n)

and the volatility will increase significantly. As the price is increasing, the spread & volume also increases significantly & there will be no or very shallow one or two bar pullbacks. If you see these charactersticks on charts, become sure that this is the final leg of (8/n)

the trend & either the stock will fall hard after this, or will remain sideways for a quite significant time. If you see these characteristics while the stock is approaching any untested BRN, than the chances are very high to get a reversal from there.

Another tool we can (9/n)

use here is the ATR indicator. ATR majors volatility. Volatility remains high when we are watching a transformation, like when a trend begins, usually the volatility will remain at it highest at that time & once the price aquires a proper direction, volatility reduces. But (10/n)

when the price is about to give the exhaustion move, the volatility will again start increasing significantly. It'll be almost at the highest point since the trend begins. Healthy trending actions are never so volatility. So if you see ATR is showing high volatility, there (11/n)

might be something not very right with the trend.

I often use these characteristics to decide about profit booking on my open positions and that is why many times am able to trade right at or around the top. It is generally not adviced to trade against a very powerful (12/n)

trend as we never know how much more it can go before reversing. But by looking for a little confirmation before trading a climactic action we can also trade counter trend with a decent success rate. One such confirmation is to look for a gap up, if in uptrend, & then a (13/n)

sell off for rest of the day after making an open high kind of setup. This formation often fully engulfs the prior green candle, then at the end of the day if price is supposed to close weaker, we'll short it. Or we can sell on the next day when price breaks the engulfing (14/n)

candle's low and here our SL will be right at the top. If we have a powerful climactic action, this can either change the complete trend or atleast swift 20-25% decline is not a big thing at all.

Last thing, it is not necessary that the stock will start downtrending (15/n)

post an exhaustion. It can end the uptrend, but can remain sideways after initial swift decline and when the accumulated supply in the prices will exhaust, it might resume again. This all takes quite a decent time to happen. Often this is also seen that when the stock (16/n)

reaches back it prior high, it starts downtrending by making a double top formation, sometime with a fakeout. So, exhaustion ends the trend, but what will be the upcoming trend is decided by the price action which follows that exhaustion. (17/n)

Now am ending this conversation with a few examples of Climactic Action. See the spread, volume & angle of the trend in each example.

Will love to listen your experience & opinions on the concept. (18/18)