Anti-Climax Pattern………..

Price Action pattern by MommyTrades….

I would like to say a big ‘Thank you’ to Mommy trades for sharing a trading setups from her archive of Three Trading setups that she talks about on her website.

In her own words “I like to trade without any emotions involved. Let the charts do the talking and decision making for me”. Below is one of her setups that she has gladly opened up for Tradealike platform.

Copying from her trading setup called “Anti-Climax Pattern” —

The Market psychology behind this particular Price action set up is that when market goes up or down with a strong momentum, folks like you & me get disappointed that we are left behind by this explosive move.

‘FOMO’ as we call it. Fear Of Missing Out.

At some point the market runs out of buyers (in case of a move up) as traders stop to realize that what the hell just happened. At that point, they just want to get out —don’t care how much they made. Just want out. That is classified as ‘Anti-Climax’ phase. Yes!!… you read it right.

What happens after a Climax is a turning point, a Crash, a burst…And as these bag holders realize the high level bearish sentiment and look to dump — guess who is ready to take advantage of the selling pressure they create. WE ARE.

How to identify the Anti-Climax Pattern?

Everyone has a different way of looking at such moves, but I like to identify the Anti-Climax phase with an easy visual test. Look at the $VISA 30-min chart below. The candles with a pink box around it and marked A-B-C are a classic example of an Anti-Climax setup. By definition, distance between close of candle A and candle B should be smaller than distance between close of candles B and C. That means sellers are in Euphoria and really enjoying last few moments of the Climax.

This example is shown as a Bullish Setup.

Point A above marks a low of the bearish trend candle

Point B is the low of second bearish candle with a close below the previous candle

Point C is the extreme low of this move, and marks the low of third bearish candle.

Note that the distance between B & C is bigger than distance between A & B.

As extreme market behaviors are unsustainable, we should be ready to take advantage of this situation. Few people like to add oscillators such as Stochastics and RSI to the mix and get some relative confirmation. However, I think those indicators are somewhat lagging and not useful in this particular trading setup. These oscillators will have to hit their extreme values before you start seeing them as overbought, oversold or Anti-Climatic. So why not use pure price play to identify this lucrative and tradeable setup.

Follow the rules below to get into a Long Anti-Climax Trade:-

1. Bullish Anti-Climax pattern is present

2. The last candle of the pattern is Bullish. Buy couple of ticks above that Bullish set up candle

3. If not, Buy couple of ticks above the next bullish set up candle that shows up

4. If price clears below the stop-loss level, get out of the position (Stop-loss is usually the low of Bullish set up candle)

Follow the rules below to get into a Short Anti-Climax Trade:

1. Bearish Anti-Climax pattern is present

2. The last candle of the pattern is Bearish. Go Short couple of ticks below that Bearish setup candle.

3. If not, Short couple of ticks below the next bearish setup candle that shows up.

If price clears above the stop-loss level, get out of the position. (Stop-loss is usually the high of Bearish set up candle)

Ideal Stop-loss:

You can see that this trading set up means going against the market bias. So if such a set up keeps moving against your position, it is good to have a plan to cut the loss and come out. I like to define my risk by placing a stop-loss appropriate to my trading set up. That way I always know my maximum exposure.

Caution:

Sometimes it can be a tricky pattern to trade because of large range moves (Top & Bottom wicks) measured by the length of candles. Can be difficult to keep in the trade, as one can get stopped out — only to find out that the trade went your way after kicking you out of the position. Therefore try to combine the anti-climax set up with other pattern(s) or Resistance & Support levels, and gauge how the market behaved when it was previously trading at that level. Let the chart talk to you, and be completely unbiased in your approach.

Closing remarks:

Another use of this set up is to effectively mark your exit trades. I would say if you are a beginner — just be prudent in your position sizing and quick to take profits. As you become more seasoned, and start understanding the psychology of such moves — make your own observations & interpretations — you will be more comfortable to enter such setups. The idea is to let you make an informed decision even if you follow other traders.

You can visit MommyTrades website for more details. She does provide alerts on the Tradealike platform, but runs her own group as well.

You can check out MommyTrading’s trading performance here.