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What magnitude of price extension is a climax exit?

Original question: In the Q&A section, you say that, “Climax moves are typically measured as a extension above the 10d or 50d moving average and they tend to peak via violent daily reversals”. Approximately how high on a percentage basis above these MA would you consider it a red flag and be on watch for a reversal?

An extension of >20% above the 10d MA is already a lot. However the real value is totally dependant of the history of the stock at hand. You actually have to back and study the history of the stock. This will tell you what is too much. But more often than not the stock flashes a visible red flag in the form of a violent top reversal on volume anyway. No need to sell into the actual extension unless there is a clothesline. When to do this and when not is part of the discretionary (read: skill & experience) process. But again, check the history and you will get a clear idea. And remember that it is always better to sell into strength than to sell into weakness.

For the 50d MA, well I don’t really use that often for timing climax moves. In almost all cases the 10d MA is the one to watch. But for the 50d MA the same rules would apply. Namely, go and check the history of the stock at hand.


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