Bear market rallies and how to survive to them.
1/7 ๐งต
1/7 ๐งต
After a long downtrend and a sell climax/capitulation wick, price tends to form a range.
Usually this is where people start buying again, it's the first impulse.
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Usually this is where people start buying again, it's the first impulse.
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Time passes and volatility dies.
Price keeps making lower highs and test range low a lot of times, like a bouncing ball.
Duration is indefinite
Here is where things are about to get interesting.
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Price keeps making lower highs and test range low a lot of times, like a bouncing ball.
Duration is indefinite
Here is where things are about to get interesting.
3/7
Now, the support is broken and two things are happening:
1. Trades who bought or opened longs previously are now stopped out/liquidated or selling.
2. Other traders follow this logic "support is broken, this will go lower" so the open fresh shorts positions.
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1. Trades who bought or opened longs previously are now stopped out/liquidated or selling.
2. Other traders follow this logic "support is broken, this will go lower" so the open fresh shorts positions.
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Then price go back above range low, then deviation is "confirmed", this is a good spot to long with a clear invalidation (last low).
A Higher High will give you more confidence and a second "confirmation". Downtrend inside range is broken.
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A Higher High will give you more confidence and a second "confirmation". Downtrend inside range is broken.
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When price go back above range low, two things happen:
1. Traders who were stopped out start to jump back in again during the upside. FOMO
2. Traders who opened shorts positions below range low are now liquidated or forced to close positions
This two things fuels the rally
6/7
1. Traders who were stopped out start to jump back in again during the upside. FOMO
2. Traders who opened shorts positions below range low are now liquidated or forced to close positions
This two things fuels the rally
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Often, bear market rallies music stops when price test range high (+40-50% from lows)
At this point you will be tempted to think that this is the beginning of the bull market, but that thinking is often wrong.
Take profits.
7/7
At this point you will be tempted to think that this is the beginning of the bull market, but that thinking is often wrong.
Take profits.
7/7
How to differentiate between a bear market rally and the start of a new bull market?
Based only in the chart, at least we need a break in market structure in high time frames (1D-3D).
In 2018 bear market we had 50-100% rallies but not a single Higher High.
EXTRA
Based only in the chart, at least we need a break in market structure in high time frames (1D-3D).
In 2018 bear market we had 50-100% rallies but not a single Higher High.
EXTRA
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