Why do people call a downtrend a bear market? Let’s look at how the bear attacks.
First, the bear runs straight ahead. Unlike tigers, lions or wolves, bears do not rush straight in. When approaching, he stands up then pounces strongly and bites the prey. When the prey is in the mouth, the bear begins to tear the flesh of the prey, letting it slowly bleed and die in pain.
And here is a segment of the bear market:
(1) The bear has identified its prey, rushes forward and stands up.
(2) Pounce strongly.
(3) Torment the prey until it dies.
What does Dow Theory say? While the bull runs up, it will stop, pick up momentum and run again. But the bear is different. It does not need momentum. It rushes and stands up, using its body to pounce on its prey. This is why prices will usually go up slowly (like walking up the stairs) but when they fall very quickly (like going down in an elevator).
Hehe! Just rambling a bit. Now we’re going to get into some sort of bearish pattern, confirmation candle and sell order.
Two ways to trade in a downtrend
Please read this article once again: What Is A Downtrend In Forex? How To Trade Forex With A Downtrend.
When the price falls, it usually falls vertically. Therefore, you need to be decisive as soon as there is a candle confirming Breakdown.
Like a ping-pong ball falling, when it hits the ground, the ball will bounce, then continue to fall. The same goes for the bear market. After a sharp drop, it will be the process of bouncing up and down. Watch for SELL on bounces.
Confirmation candle in the downtrend
Features: Red candle, long body, closing price close to or equal to the lowest price. In technical analysis, this candlestick pattern is called Bearish Marubozu.
1st position: Breakdown
The word “down” is understood as when the price breaks out of this zone, the market will enter a downtrend.
Theory: At the end of an uptrend, the market starts moving sideways (Distribution). Boom! The price drops sharply and the market crashes very hard. It starts with a bearish confirmation candle, breaking down from the distribution area.
Distribution is a process and the market rarely follows a pyramid pattern (strong up and strong down). In most distributions, you can always draw a Key Level or a clear support level. The Breakdown candle needs to pierce straight through and close definitely below this level.
Special note: When the market enters a downtrend, there will be extremely strong declines, penetrating all the Key Levels that you can draw before. Therefore, you will easily have the psychology of wanting to buy and it is very easy to enter a buy order. This is the beauty of the Bear market. The more you buy, the more money you lose.
2nd position: Bounces
Theory: The pullback in a downtrend is often an opportunity for you to continue selling. For me, the signal is still a candle confirming the pullback is over and the price will continue to fall again.
Price retracement will come after sharp declines. The market at times like this is easy for SELL orders. Just the profit won’t be as great as when you catch the Breakdown.
Note: It is very rare for the market to drop sharply and then increase sharply again. Usually, it will be a bounce scenario to continue falling or accumulate again, creating momentum to go up. Even in this case, the SELL order is still the safest.
When the bear attacks, it will stand up and then pounce on its prey. The market is also the same before the downtrend. There will be some retracement and crashes.
Wait for the confirmation candle. The stronger the bearish candle, the more prestigious it is. Because when the price drops sharply, it will spread the crowd psychology, selling off the whole market.
Sometimes you just need to catch 1 Big Short (long drop). It is more than enough. And if trading is too difficult, just trade in one way – SELL.
Reason: The bull running up will need to rest to gain momentum. Or in other words, in an uptrend, there are still retracements for you to sell. In a downtrend, if you catch a SELL, sometimes you will get a Big Short.
Trading examples with confirmation candle
SELL Gold (XAU/USD) order.
In the daily chart, gold is still in a downtrend (it hasn’t created a new high higher than the old one).
In the H4, the confirmation candle closes below 1780 => Enter a SELL order.
– Place Stop Loss above the confirmation candle (140 pips).
– Take Profit at the Supply Demand zone below.
SELL EUR/USD order.
In the daily chart, EUR/USD is still in a downtrend, and it is returning to the Key Level.
In the H4, the confirmation candle appears and the previous key level is broken => Enter a SELL order.
– Place the Stop Loss above the confirmation candle (40 pips).
– Take Profit in the Key Level below. This order has the ratio R:R = 1:1.8.
We will have an article on the trading log to summarize all the orders in this $15,000 account. Let’s see after the whole process of learning and practicing whether we make a profit or a loss.
I repeat that the beauty of a downtrend is to make traders want to BUY rather than SELL. Maybe because traders have been waiting to BUY in the Key Level below. Maybe they find the price cheaper, etc. But for whatever reason, the truth is that most people lose money on sharp drops.
For example, in the Crypto market, in an uptrend, everything increases – every coin increases – even shitcoins also rise. But usually, people will lose everything in a downtrend. No matter how much money they make, they will return all to the market.
Remember: In an uptrend, people use BUY and Hold. But in a downtrend, they use Big Short. Hope you understand what I’m trying to say.
Apart from this blog, all my articles are also posted on a telegram channel. You can read them here: JQKA Academy.