Methods for determining the bearish trend
Trend – a steady and continuous trend of price movement in any market. Most of the distinguishing features and causes of trends in the cryptocurrency market do not differ from traditional tools. Trends do not start and do not end from scratch, it is often possible to determine certain factors that serve as a catalyst for an existing trend or play the role of a stopping factor for its slowdown, stop and, finally, a reversal. And most importantly, traders and analysts are highly likely to identify these factors before they have their predictable impact on price movements.
When we talk about determining medium-term and long-term trends in the cryptocurrency market, we are talking about the analysis and adoption of trading decisions at the moment, rather than finding causal relationships after the fact. And here it is worth going to the first part of the article.
Signs and methods for determining the bearish trend
No matter how expected it may sound, the very first clear sign of a bear market is a falling price, but it is not so simple. Naturally, some conditions must be met. For example, as with a bullish trend, each subsequent peak of a rising price should be higher than the previous one, and with a downtrend, each subsequent peak of a falling price should be lower than the previous one. This is the first sign of a bullish trend in reliability, but it is by no means the first to appear.
It will take some time to confirm this steady downward movement. This is a fairly common occurrence in the world of financial analysis, and not only for cryptocurrencies. If we want to get reliable confirmation of a particular trend, we need to give it some time to develop in order to form a full-fledged signal. At the cost of a small fraction of the movement, we get higher reliability.
It is worth noting another simple way to determine the trend – moving averages. By analogy with the definition of a bullish trend in a bearish trend, we will see a stable picture on the chart, in which the asset price most of the time is below the medium-term moving average (MA, Moving Average).
This feature can also be attributed to one of the oldest and most reliable, therefore, before judging the presence or absence of a trend and its direction, it is worth checking the readings of moving averages.
Now let’s talk about the accompanying and not so obvious signs, although here everything is pretty simple and not so much different from the classical financial markets. The first and probably most important thing to note is the news background and the mood of the crowd. In fact, we can safely say that this is the main and most reliable indicator of the real situation on the market. And even the most unexpected speculative actions on the cryptocurrency market occur only at those moments when the majority expectations in the market reach the necessary peak values, the so-called “boiling points”.
Naturally, unforeseen speculations with the participation of large volumes are called unforeseen, and their forecasting directly for the most part is impossible. But due to the fact that such events occur with very similar symptoms, for the most part they are the result of decisions of a small group of “whales”, and sometimes even one person.
Here the logic is also quite simple. If you see that the ratio of buyers to sellers in the market reaches critical values (2 to 1 or even more than 2.5 to 1), then this means that the probability of speculation from the use of significant capital increases. Using it is simple. Is Bitcoin gaining 100% in two months and every second person talks about it? Sell it and be satisfied with this incredible profit. Avoid general hype – this is one of the basic rules of new trading instruments. Do not run into the first and last carriage.
Distinctive features of trends in the realities of the cryptocurrency market
Unlike classical instruments, where there are established norms, some unspoken rules and market cycles, everything happens on the cryptocurrency market now and in the moment. Only the trends and beginnings of market cycles are being formed, the first attempts at regulation and standards of mutual settlements appear.
From all this uncertainty, several patterns come to light that distinguish cryptocurrency trends from classic trends.
Firstly, it is worth noting the lower price stability of bitcoin and other coins compared to the global trends of some currency pairs.
What useful conclusion can be drawn from this difference? Trends in the cryptocurrency market, or rather their analysis, can produce a large amount of “noise”, that is, false indicators. Most of the major transactions for the sale and purchase of the same Bitcoin in particular are carried out off-exchange, these are the so-called “over the counter” transactions, but sometimes gigantic volumes go through regular exchanges and produce the same surge that could incorrectly affect someone else’s Trading strategy.
Therefore, you need to adopt a few simple tricks:
- Do not pay much attention to what happens on the lower timeframes, candles less than an hour are almost a complete reflection of market noise in the cryptocurrency market.
- Most indicators will need to be reconfigured and made more tailored to the realities of the cryptocurrency market. Reduce their sensitivity by increasing input. For example, for Bollinger bands, choose period 2.1 instead of 2, use moving averages with a period greater than 10% (33 instead of 30, etc.).
- Pay attention to volumes. If the price movement is not supported by the corresponding volumes at a new level, then this is simply a single large purchase or sale, and the price will not stay at these new levels. Take this into account when classifying price movements within a trend.
In conclusion, it is worth noting that trends often inherently have great similarities regardless of which market they are talking about. But the cryptocurrency market, due to its uniqueness, has some features that we discussed in this article. This is a young and very plastic market in which each new element can play an unexpected role. In order to earn money, you do not need to be a predictor. Ahead of the market position by just a couple of seconds and have a more complete picture than the one that is available to the crowd – this will be enough.
Have a good bid! And remember that there are no bad market situations, in a falling market you can earn as much as in a growing one, thanks to short positions.