QuestionsTrying to grasp the Buy and Sell Xtreme concept
Anonymous asked 4 years ago

X-Tick, stop run and gap tools are easy to understand. However, I still I do not grasp the buy/sell xtreme concept. The question area seems to have no information about this topic. Can you shed some more light on it.

1 Answers
mcm-petermcm-peter Staff answered 4 years ago

A buy extreme - as all extremes (BUY or SELL) are showing that an emotional exhaustion is occurring.
This in itself does not mean a reversal - per'se BUT all buy extremes and sell extremes setups are representing much higher than normal emotional exertion. Therefore, much higher probability conditions for infection or stress points in the markets. and are logical places to have a close eye for lower than normal risk opportunities
These are logical places to have a close eye for lower than normal risk opportunities.
BUY and SELL Extremes are triggered when a Large confirmation box is rendered on the emotion extreme price tracking line. Price tracking occurs when emotions are extreme and capitulation may occur. They follow the intensity of capitulatory setup character of the markets. Price tracking stops under two situations. When prices stop advancing or declining or most often when a capitulatory episode has completed. This means that we have all the markers for a capitulatory behavior met and accounted for. At that time price tracking remains constant and marks KEY SUPPORT or RESISTANCE and the bar that marked the consummation of the overall capitulatory event is marked with the large box or circle depending on context.
Anonymous Further asked: "Actually, both are opposite signals. this is what I understand, am I correct?"
YES, this is absolutely the case. BUT that does not mean that these events mark reversals. They mark areas of significant emotional exertion and capitulation in the markets by participants. WHEN these types of things occur they can occur for two reasons:

  • Panic
  • Commitment 

This is the crux of a buy and sell extreme - its the only way to tell that participants are over exerted and exhausted
BOTH signals are indicating exhaustion or ideally reversals
However, IF a buy extreme is subsequently run over - meaning that prices break out over the resistance line rendered on the chart. This is a serious event because that is a breakout and the professionals who shorted it are being evicted from their positions which can catapults the market - moreover, it takes real commitment and emotional power to take out a previous exertion point
So, the amazing thing that happen from these Buy Extremes and Sell Extremes is not reversals but inflection points. So, these are areas that high attention is warranted because one more or less has privileged data on market participant mentality. This means a breakout which holds over a buy extreme is just as important as a reversal that occurs when capitulation leads to a reversal - as it does in most of the cases.