To trade bear market, we’ll have to know when the price of an asset plummets and begins to set new lower lows as it falls. These trends will not lead you to profit if you are looking to place long orders, in fact, any attempt to trade upwards during a downtrend will result in capital losses, except for some pullback that may occur during the trend. As traders, we must identify the exact entry point and take advantage of the downward path with short orders.
A downtrend can last as long as an uptrend and can happen for basically the same reasons, whether it’s some news that prompts many investors to withdraw capital from an asset, a global event, little price force to break certain levels of resistance etc. The important thing is to identify the start of this trend using patterns and win while the price falls, so we are going to take a look at 4 secrets to trade bear markets.
Disclaimer: this article shouldn’t be considered investment advice. This is for educational purposes only. Never invest more than what you are able to lose. Always request information from your personal financial advisor.
Wait for confirmation to trade bear markets
Generally, bearish trends can be seen coming before they happen, unless factors such as fundamental news or money injections to the market influence. However, to be sure what we can position our short order, we need to wait for a confirmation, such as a bearish candle with a long pin bar to the upside, which means that the price tried to rise and was unsuccessful.
After this we can see a succession of bearish candles with small setbacks that will fail to return the price higher and will take it to lower levels.
Upon receiving confirmations of a downtrend, it is recommended to position the short order just below the highest point, once the bears start to take over the market. This will give you the assurance that the price will move with your analysis and will ensure an excellent entry from the beginning of the trend. Through several confirmations, you will be trading bear markets safely.
Watch support and resistance levels
Bearish trends can be harnessed much better so we get to know before they start. How can we know that the bears are coming to the market? There are several ways and one of them is the forceful rejection of resistance levels. If the price fails to break a resistance level (especially if it fails more than once) it is a key indicator to know that it does not have enough strength to continue rising and therefore a trend change is possible.
Once the price starts to drop, the support levels will be the next limits to test. If the price manages to successfully break one or more support points, it will be safe to deduce that the market is facing a strong downtrend with a long way to go.
Exponential Moving Average Cross
One of the surest ways to identify a downward trend change and prepare a short order is when the EMAs cross in a certain order. If the EMA 6 and 18 cross while they have the EMA of 50 and 200 above, we can consider this configuration as a downward trend change, although we will also depend on factors such as volume and previous price levels to calculate our route and positioning the trade.
Estimate how far the price can fall
When trading bear markets, we can take advantage of a whole downward journey by estimating to what level the price may fall, which is possible thanks to bearish trends that have taken place in the past. Analyzing the chart at other times will show us a macro image of the price history and we will be able to determine the key points at which the price usually stops or searches once it begins its run.
