Reversal Days: Buying & Selling Climax

When it comes to technical analysis, at times we found ourself searching for

something which really works. Something which can really turn it all around. I
don't know how many of you have heard of this principle before but I can
assure you this is something which is going to work almost all the time.
Whenever, this pattern will occur on the charts, the next moves will be
exactly the same as we are going to learn now. So, without wasting another
second of your previous time. Let's move straight away to the concept.

Climax Principal is basically a important concept that helps us to spot trend

reversal. This particular chart formation goes by different names top reversal
day/ down reversal day/ buying climax/ selling climax etc. First of all let's
understand what is reversal day.

Reversal day usually occurs either at the top or the bottom of the chart.A top
reversal day can be defined as the setting up of a new high in a uptrend,
followed by a lower close on the same day. In simple words, the price moves
up during the day establishing a new high but at the end weakens and closes
below the open price. A bottom reversal day occurs during adowntrend the
price moves to a new low during the day and at the end recovers and closes
above open price.

Wider the range and heavier the volume on reversal days greater would be
the significance of trend reversal. The reversal days or buying/selling climax
may not be the final high or low in a trend but they signal a possible reversal
of trend. Let's have a look at the following chart showing bottom reversal or
selling climax.
The main idea behind bottom reversals is that at during such lows the sell off
starts getting absorbed by the buying pressure which gets reflected in the
chart. Hence, the trend reverses upwards.
On the other hand top reversal or buying climax occurs in a uptrend as can be
seen from the following chart the price moved to new high and yet closed
lower than the opening price depicted by dark candle. This point is major
signal of trend reversal.
Selling climax in PG:

Another point to put here is that buying and selling climax works only when
we have a clear trend on the charts. In case of sideways trend its better not to
draw any conclusions.
Few more examples:
To sum it up:

1) In a downtrend, the price should move downwards during the day,

establishing a new low and then close above the open price.

2) In a uptrend, the price should move upwards establishing a new high and
then close lower then the open price.

3) The price movement should be spread over a larger area means the high or
low established during the day should be atleast 7-8% more than previous
high/ low on the charts followed by a close against the trend.

4) Higher the volumes on reversal days more significant will be the results of
this principle