Greetings! In this article, I will be explaining the steps on how to trade a downside move.
Introduction - What is a crash.
A crash is like what its name suggests. Whenever the price moves towards much lower price targets. These moves can be tricky to navigate for newer traders, but fortunately, easy once you follow these steps below.
1: Check ANY news regarding crypto or economics in general
Whenever a large move to the downside happens, it is recommended to check for any news pertaining to crypto. If the news that triggered the move is very bearish (News as big as FEDs hiking rates (With a bearish statement) or U.S banning crypto (As a whole)). Then it is best to wait for a lower range of strong support (If the crash is relatively early). However, if the news is anything less severe than the ones mentioned or there is no news at all, then it is best to move on to the next steps.
2: Check RSI (Relative Strength Index) and MACD (Moving average convergence divergence)
Whenever a large move in either direction happens, I always look at the RSI and MACD indicators for my next move. These two indicators will provide me with immediate parameters for what to do (In the short term). If the crash, for example, causes the 24hr RSI to go down to oversold territories (less than 30.0) and MACD goes down to the negatives, I'll know that there is a high likelihood for some kind of bounce.
If the RSI is under (30.0) and the MACD is down to the high negatives (Shown by the red bars in tradingview) is the basic indicator to look out for.
3: Check Support zones
After checking the RSI and MACD, you should check for the areas of support and resistance. If, let's say, the price in question is at an important range of support, it would be a good indication to buy. This step is used to make sure that the RSI and MACD really bottomed out and is ready for a reversal. If it is not at a good point of support yet, then maybe you should wait a little bit to make sure the price is really at the bottom of the downside move.
4: Check for any reversal patterns
If all these steps pass, then the final step is to look out for any kind of reversal pattern.
This can come in many forms:
- Double Bottom (Or triple bottom)
- Inverse head and shoulders
- Rounding Bottom
Any one of these would pass as a good indicator to buy.
5: Don't go all in at once
Lastly, you shouldn't go all in at once in one move. You should ALWAYS have reserves for certain possibilities (Bullish or Bearish) because sometimes, the markets can act irrational (Which can cause the price to move in unexpected ways).
