Learn to Take advantage of ‘Panic Selling’ to Forex Trading Strategies
Learning Forex – ‘Panic selling’ occurs when prices move down quickly at high volumes. This often happens when some market participants enter to neutralize the movement, or when a trader who takes a short position forces the price to go down far enough.
The panic selling process occurs because there is a tremendous opportunity when traders are taking long positions, and makes the price move down sharply especially when fundamental statements are speculative (such as economic news or analyst opinions).
Here, we will explain the panic selling process that can help you predict the right time to take long positions after the panic selling phase occurs.
Panic selling occurs in several stages. The figure below illustrates panic selling scenarios as they occur when data is released.
Let’s discuss, what happens at each step in the chart:
Step 1 – Something happens that causes prices to move rapidly down with high volume.
Step 2 – High volume occurs when buyers and sellers enter the market to control trends. The winner of the process then takes a low volume trend.
Step 3 – If there are no significant trend changes occurring at point 2 to carry out the continuation movement, then there is usually another high volume point where substantial reversal movements can occur.
Step 4 – This process will continue until the trend moves up which is confirmed by technical or fundamental factors.
Now we will see how we can predict when a trend change will occur.
Moment selling will stop when the price has reached the support level. This can be seen by using a combination of trend indicators, volumes by observing changing trends. There are various indicators that can be used to confirm that the trend has changed.
As a trader, you can choose how many indicators can confirm the trend as desired. The fewer confirmation indicators used, the higher the risk and the higher the reward will be obtained (in the sense that, the longer you wait to be confirmed, the profit potential will decrease).
Rules for using selling moments are as follows:
- The first price must decrease quickly with high volume.
- Volume will soar up, make a new low, and appear to reverse the trend. Look for candlestick patterns that show the battle between buyers and sellers (engulfing).
- The higher low price wave must be seen, this is the moment to open long positions.
- A sideways move in the bottom trendline area will occur.
- Moving averages of 40 and / or 50 days must be penetrated by prices.
- Note that you can use a moving average by connecting the highest or lowest prices. Usually, a sideways period of a larger moving average will show when sideways time of the moving average with a smaller trend.
Panic selling naturally creates an opportunity for traders to open a buy position with a larger lot for profit. Those who know when panic selling will occur will potentially benefit more from the phase of retracements or price movements that occur after that.
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