Climaxes and Churns
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Wilfred HodehomeyClimaxes and Churns
Uploaded by
Wilfred Hodehomey1.
High Churn (Distribution or Absorption)
Definition:
• High volume with little to no price progress (narrow range candles).
• Indicates strong disagreement between buyers and sellers.
Interpretation:
• Bullish Context: If after an uptrend → Smart Money may be distributing (selling to
retail traders).
• Bearish Context: If after a downtrend → Absorption (strong buyers absorbing
supply).
Key Signs:
Very high volume but price stalls (Doji, spinning tops).
Often precedes a reversal if after a trend.
Example:
• Stock rallies, then trades flat for days on huge volume → distribution before a drop.
2. Low Churn (Lack of Interest)
Definition:
• Low volume with small price movement (tight candles).
• Shows lack of participation (no conviction from buyers or sellers).
Interpretation:
• Trend Continuation: If in a strong trend, suggests minor pullback before
resuming.
• Reversal Warning: If after a big move, indicates loss of momentum.
Key Signs:
Volume dries up → price barely moves.
Can lead to a breakout or breakdown if volume returns.
Example:
• Stock consolidates after a rally on low volume → may continue up if volume returns.
3. Climax Churn (Exhaustion & Reversals)
Definition:
• Extremely high volume + extreme price move (large candle).
• Signals capitulation (panic selling) or euphoria (panic buying).
Types of Climax Churn:
A. Buying Climax (Bull Trap)
• Price spikes up on massive volume → then reverses.
• Smart Money sells, retail buys the top.
B. Selling Climax (Bear Trap)
• Price crashes on huge volume → then reverses up.
• Smart Money buys, retail panics and sells low.
Key Signs:
Volume spike (2-3x average).
Price reverses sharply after climax.
Example:
• Bitcoin surges to $69K in Nov 2021 on record volume → then crashes (buying
climax).
Comparison Table: High vs. Low vs. Climax Churn
Type Volume Price Action What It Means
High Churn Very High Narrow range Distribution or Absorption
Low Churn Very Low Small candles Lack of Interest / Consolidation
Climax Churn Extremely High Large price spike Exhaustion & Reversal
How to Trade Churn Signals
1. High Churn → Watch for Reversals
• After an uptrend → potential distribution (sell setups).
• After a downtrend → possible accumulation (buy setups).
2. Low Churn → Wait for Breakouts
• Low volume pullback in an uptrend? Look for continuation.
• Sideways on low volume? Prepare for a breakout.
3. Climax Churn → Fade the Move
• Buying climax? Look for short opportunities.
• Selling climax? Watch for long entries.
Real-World Example (Tesla Stock - 2022)
1. High Churn (April 2022)
o TSLA traded flat near $1,100 on huge volume → then crashed (distribution).
2. Climax Churn (Dec 2022)
o TSLA plunged to $108 on massive volume → then rallied (selling climax).
Key Takeaways
• High Churn = Big volume, no progress → Reversal likely.
• Low Churn = Low volume, no momentum → Breakout coming.
• Climax Churn = Extreme volume + price spike → Exhaustion reversal.
Would you like me to provide annotated chart examples for each type?
