When the stock market crashes, people like to panic and sell their assets as quickly as possible. But what if there was an alternative? What if you were able to sell as the market dipped, without actually having to sell any of your assets? It’s an intriguing possibility, but it’s easier said than done.
On top of the signals provided by Fibonacci, many technical charts have their own indicators that can help you to trade better. Some of the most popular indicators are stochastic, candlestick, MACD and RSI. The great thing about these indicators is that they are not one-size-fits-all. Each one focuses on a different aspect of a chart and have their own pros and cons.
The price of bitcoin has had a wild ride this year, with a strong spike in Q1 and a steep slide in Q2, but has seen a steady recovery since then. The reason for this is in part to the increasing price of bitcoin mining hardware. As the price of bitcoin has grown, so has the price of bitcoin mining equipment. The price of bitcoin has been growing rapidly, however, the cost of bitcoin mining has also increased. As such, some traders are concerned about the potential profitability of bitcoin mining.When an asset enters a falling market and the headlines are negative, analysts predict further declines and sentiment shifts from optimism to outright gloom. As a result, panicked traders liquidate their positions down in the trend instead of buying. How can traders go against the herd and have the courage to buy in a falling market? This is not easy, because if they buy too early, the position can quickly turn into a loss. But if they wait too long, they may miss the start of the rally. While it is difficult to pull the trigger during a falling market, the Relative Strength Index (RSI) can be used to identify market lows and favorable risk/reward scenarios. Let’s look at some examples of when to buy in a falling market.
Look for extremely oversold levels on the RSI
Daily chart BTC/USDT. Source: TradingView Bitcoin (BTC) peaked near $20,000 in December 2017 and began a long, crippling bear market that bottomed near $3,300 in December 2018. In this period the RSI has entered oversold territory five times (values below 30) (indicated by ellipses on the chart). The first four times the RSI dipped close to or just below 30, but the fifth time it dipped to 10.50. This is a sign of capitulation, where traders who were buying in anticipation of a bottom or holding on to their positions in a falling market have succumbed to fear and liquidated their holdings. Typically, long bear markets end after long periods of fear-based selling. Smart traders wait for such opportunities and buy when the markets are heavily oversold, for example when the RSI is below 20. Daily chart BTC/USDT. Source: TradingView The RSI fell to near 20 twice in 2019 and 2020, dropping on the 12th. March 2020 to 15.04. The first time the couple met was on the 26th. September 2019 at 19.60 proved to be a losing trade, as the price fell a few weeks later, at 23. October 2019, hit a new local low. This shows that traders must be prepared to close their positions when their stops are triggered, because if they don’t, the losses can continue to pile up. The 24th. The November 2019 RSI fell to 22.32, just above the 20 level. For traders who keep a very tight stop, this trade would also result in a loss if the price drops on the 18th. December 2019 Fall. However, these were small losses that would not have affected the portfolio had the traders not used high leverage. The RSI fell to 15.04 on March 12, 2020, and traders who were brave enough to buy after that drop would have made huge profits had they held their positions during the bullish phase, which ended on the 14th. April 2021 peaked at $64,854. It shows how traders won the jackpot after two losing trades using the RSI signal.
The combination of RSI and moving averages gives the best signal
During Ether’s (ETH) bearish phase in 2018, there were four occasions when the RSI dipped below or approached the 20 level. The first opportunity gave traders an excellent return, but the other two did not. To avoid whiplash, traders can add additional filters to protect themselves from losing trades. A simple example: Instead of buying immediately after the RSI drops below 20, traders can wait until the price closes above the 20-day exponential moving average for three consecutive days before buying. ETH/USDT Daily Chart. Source: TradingView As you can see on the chart above, the April 2018 buy signal was triggered when the ETH/USDT pair moved above the 20-day EMA after falling below the 20-mark on the RSI. This trade proved to be profitable as the pair showed a strong upward movement. The next buy signal in August did not meet the criteria as the price did not exceed the 20-day EMA for three consecutive days. A third transaction in September would have ended in a small loss, but a transaction in November would have yielded a large profit.
Bullish divergences and how to recognize them
Another important tool that can alert traders to a possible trend reversal is the bullish divergence. This happens when the price continues to fall but the RSI reaches lower levels, indicating a possible weakening of bearish momentum. Daily chartLTC/USDT. Source: TradingView Litecoin (LTC) shows the formation of two bullish divergences during the bearish phase of 2018. The initial divergence formed from August to September 2018 proved to be a false signal as price failed to break above the swing high. However, the second bullish divergence from November to December 2018 proved to be a profitable signal from the bottom, followed by a strong rally in the following days. daily chart of ETC/USDT. Source: TradingView Another example of slightly longer bullish divergence can be seen on Ethereum Classic (ETC) from September to December 2019. The price formed lower lows during this period, but the RSI formed higher lows. The ETC/USDT pair rose sharply over the next few days after it broke above its swing high. Daily chartTEV/USDT. Source: TradingView VeChain (VET) also showed a bullish divergence formation from September 2020 to October 2020, followed by a sharp rise. This shows that bullish divergence is a useful tool which, if used wisely, can be of great value to traders.
Some key results
Bear markets provide an opportunity to buy an asset at a much lower price, but it’s not easy to buy when everyone is selling and sentiment is negative. Traders who use the RSI, however, can gain an advantage. The extremely oversold RSI is a sign of capitulation, which usually indicates the end of a bearish phase. This strategy can help traders pull the trigger when needed. Sometimes the RSI can give false signals, so traders can use additional filters, such as daily closes above the 20 and 50 day moving averages, to avoid swinging. Observing bullish divergences can also alert traders to the possible end of a downtrend. The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph.com. Every investment and every transaction involves risk. So you need to do your own research before making a decision.2018 was the year of the small cap! And if you don’t believe me, you can just ask the market itself. With the rising popularity of cryptocurrencies, the market capitalization of all cryptocurrencies has now exceeded that of the next 50 largest stocks in the world. The crypto market has made its way into the mainstream, with some of the world’s largest companies – including those in the financial industry – starting to adopt blockchain technology into their own operations. Last month, Coinbase, the world’s largest cryptocurrency exchange, received a $300M investment from the New York Stock Exchange, which saw the company’s valuation rise to a staggering $8 billion.. Read more about pump and dump crypto and let us know what you think.
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