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>> I read in one place that low volatility is associated with
bottoms and in another place that low volatility indicates an
approaching top. Can't be both, can it? <<
David,
Both Climax Bottoms and Climax Tops generally occur w/high
volatility -- long price spreads, sharp price moves and high, even
excessive volume. (Hence the term "climatic".) Either greed or fear
takes over the public as they see price shooting up/down sharply and
they jump aboard or bail out in the herd mentality. The pro's,
meanwhile, are quietly distributing/accumulating their shares during
this time. This is the classic exchange from "strong to weak holders"
(or vice-versa).
Price then goes into a trading range (assuming it's not a V
top/bottom). The first part of the range will still have volatility,
which should then dissipate as the range progresses - price spreads
and movement will narrow and volume will drop off. Moving averages
will flatten and converge. Volatility then returns on the breakout of
the range.
The markets constantly cycle thru low-high volatility. This happens
in each rally and reaction, as well as at tops and bottoms. You can
see it plainly on the charts. "Buy in mild times and exit in wild
times".
Harold
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