Stock Market for Dummies: Watch Out for Climax Tops

Understanding the Stock Market

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This next stock market for dummies post is more intended for those long-term traders who stay with investments for over a month. The market is such a complicated entity because there are so many different rules that one must follow in order to have a chance to be successful. Although the term “climax tops” might seem like one of those complicated rules, it isn’t. In fact, this is probably one of the simplest rules to learn the stock market.

A climax top is when a increase in buying of a particular stock becomes too obvious and investors become way too excited of the price movement. Understanding the stock market can sometimes be a complicated thing but many of you already knew what a climax top is, just not by the term. However, let me go ahead and be more specific and paint you a picture of what this rule means.

Let’s say that a stock has been rising gradually for the past few months, a total increase of 50%. Not bad. All of a sudden, the stock jumps in price quickly, a gain of 25% in a matter of a few days. Not only that, the volume of that stock has rising substantially, obviously because of the big increase in stock price. A few days or a week later, the stock drops, a couple of days of 10% declines. The point at which the market hits that top before the big decline is the climax top. This term is more of a technical analysis (graphical) type of term (which I don’t like to follow too closely) however, it can be extremely useful for all those who are in need to learn the stock market.

This stock market for dummies rule was only divulged so that you as an investor won’t get caught up in these climax tops. There are a two situations that you need to avoid with these climax tops: 1) Be aware of when you’re stock is approaching a climax top and sell before you hit the top. It is hard to exactly pinpoint the top so always play on the safe side. Each stock works differently so I can’t give you an exact number to watch for however, you can estimate by watching the volume trends. DON’T GET GREEDY!

2) Unless you’re a trader who is constantly watching the market, don’t buy stocks based on climax tops. Yes, these stocks are easy money however, there is a small window of time in which a trader can make a profit. And since that window of time is so unpredictable, it would be foolish for anybody to jump in without the proper knowledge and experience. Understanding the stock market is simple if you are not a greedy investor.

If you have any questions or comments about this rule or any other stock market related question, please don’t hesitate to email (found in my profile). You can also find tons of information in the links on the sidebar to better learn the stock market. The link below is best suited to reveal the information on this stock market for dummies rule.

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