May 13
3 Effective Ways to Catch a Falling Knife in Crypto | And More in This Weeks Crypto Update.
- This Chart Pattern Calls for Algorand $1.0 Target
- Dogecoin’s Bullish Cycle Tells Us When We’ll See a New All-Time High
- 3 Effective Ways to Catch a Falling Knife in Crypto
This Chart Pattern Calls for Algorand $1.0 Target
The technical chart suggests that Algorand (ALGO) has the potential to tag the $1.00 milestone again. The downswings since February 8 can be confined within a descending channel, with the swings getting shorter in magnitude and the momentum drying out.
Algorand Descending Channel
After reaching the lower support trendline, the ALGO price bounced, and we’re now looking for a possible retest of the upper resistance trendline, which falls near the $1.00 psychological level.
The current bounce is also supported by the RSI oscillator, which broke above the 50 mid-level. The last time the RSI broke above the 50 mid-level on March 21, ALGO’s price retested the upper resistance trendline.
The pattern, if confirmed, could set off a much larger rally in the coming months. However, for a meaningful reversal, we would need a daily break and close above the descending channel but, more importantly, above $1.00.
We also have a massive bullish divergence between the price and the RSI oscillator, which highlights the exhaustion of selling pressure. This is a significant price development because it has the potential to call for a potential bullish reversal.
Looking forward: We have to keep in mind that the overall trend is bearish as we’re still trading below the 200-day simple moving average, and in terms of the price structure, we are still following a bearish path. However, we might be in the process of a reversal if the pattern highlighted above is triggered.
Dogecoin’s Bullish Cycle Tells Us When We’ll See a New All-Time High
Based on the long-term trajectory of Dogecoin (DOGE), the DOGE price has the tendency to produce a new all-time high every 3 to 4 years. Therefore, this pattern can help us predict DOGE’s price moving forward.
Dogecoin Bullish Cycle
Based on this cyclical model, we can expect Dogecoin to reach a new all-time high anywhere between 2024 and 2025. From January 2014 to January 2018, we had the first bullish cycle which lasted 4 years. And from January 2018 to April 2021, we had the second bullish cycle lasting 3 years.
Between each all-time high, DOGE’s price tends to consolidate in never-ending ranges that have sudden bursts in the price that are quickly reversed.
These consolidations have lasted a minimum of 156 weeks before DOGE broke above the previous all-time high.
All things considered, we don’t know for sure how DOGE’s price will perform compared to the previous cycles, but we have a rough estimate of what we can expect moving forward.
Looking forward: The bottom of this consolidation can be established at the $0.05 considerable round number. This level is significant because when the price broke above it in April 2021, it led to Dogecoin hitting a new all-time high.
3 Effective Ways to Catch a Falling Knife in Crypto
In technical terms, catching a falling knife refers to buying a cryptocurrency that is rapidly selling off. The steep decrease in the price makes this trading strategy very risky, but at the same time, if done correctly, it can yield massive returns.
What is a Falling Knife in Crypto?
In the financial industry, a falling knife is a stock/crypto or any other asset that has been in a strong downtrend and is trading at a fresh low.
The analogy comes from the fact that it’s very hard to catch a knife that is falling without getting hurt. The same concept applies to cryptocurrencies.
Below are 3 rules to abide by if you want to buy cryptocurrencies right at the bottom.
Rule #1 Temporary Headwinds Or Structural Issues
The first rule is to look at the overall market trend and analyze if the sell-off is due to temporary headwinds or if there are structural issues. For example, the Bitcoin sell-off due to China’s crypto mining ban in May 2021 was a temporary headwind.
Bitcoin’s rapid sell-off was short-lived, and the cryptocurrency bottomed right on that day. So, buying a falling knife in this scenario was the smart thing to do.
Rule #2 The Crowd Tends to Overreact
In the short term, when there is an overreaction in the market, we tend to get a bounce. Richard Thaler, Nobel Prize winning economist, showed that if we take higher risks, in the long run, it will lead to higher returns.
Rule #3 Lower the Time Frame
Lastly, make sure you lower your time frame to an intraday chart to have a better idea of when the price is about to reverse.
An easy way to time the reversal is to wait for the final flush to the downside, which will usually be a big exhaustion candle with a big wick and then a confirmation candle that reverses the most recent selling pressure.
How risky can a Falling Knife be?
Catching a falling knife is very risky because if you buy at the wrong time, you can get caught in a vicious cycle.
As the price keeps going down, you keep buying more because you think the price can’t go any lower. But eventually, you’re left with a large bag of crypto and the price keeps going lower.
If you can’t handle the mental stress of a falling knife, then you’re better off not catching it.
The Difference Between a Falling Knife and a Spike
A spike is a sharp move to the upside that is usually due to a strong catalyst. A spike can also be a move to the downside due to an unexpected event.
The difference between a spike and a falling knife is that a spike is a sudden move due to a market event, whereas a falling knife is a prolonged downtrend due to bad fundamentals. For example, Bitcoin’s move from $20k to $3k was a falling knife.
Summary
The bottom line is that when you see a sharp move to the downside, it’s usually an opportunity to buy a cryptocurrency at a discount. But make sure you follow the above-mentioned rules to avoid buying the falling knife too early. Above all, don’t buy the falling knife if you can’t handle the mental stress.
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