‘Panic selling occurs when the price goes down rapidly at high volume. This often occurs when some market participants log on to neutralize the movement, or when the trader is taking a sell position to force prices down far enough.
Panic selling process happens because there is a tremendous opportunity when traders were taking long positions, and make prices move down sharply mainly occurs when the fundamental statement that smacks of speculative (such as economic news or opinion of the analyst).
Here, we will explain the process of panic selling that can help you to predict the right time to take long positions after a phase of panic selling occurs.
Panic selling occurs in several stages. The figure below illustrates a scenario of panic selling as happens when the data was released.
Let’s discuss what happens at each step in the chart:
Step 1 – Something happened that caused prices to move rapidly decreases with higher volume.
Step 2 – The high volume occurs when buyers and sellers into the market to control the trend. The winner of that process then takes the trend to low volume.
Step 3 – If there is no significant trend change that occurred at a point 2 to perform the movement of the resumption, then usually there is another point to the high volume in which the movement of substantial reversal may occur.
Step 4 – This process will continue until the trend moves upwards, confirmed by technical factors or fundamental.
Now we will see how we can predict when a trend change will occur.
Moment of selling will stop when the price has reached a support level. This can be seen by using a combination of trend indicators, volume by taking into account the trend has changed. There are various indicators that can be used to confirm that the trend has changed.
As a trader, you can choose how many indicators to confirm the trend liking. The fewer confirmation indicators are used, the higher the risk and the higher the rewards will be (in the sense that, the longer you wait to be confirmed, the potential benefits will be reduced).
Rules for using the moment of selling are as follows:
- The first price should decrease rapidly with high volume
- The volume will spike, make a new low, and appears to reverse the trend. Look for candlestick patterns that indicate a battle between buyers and sellers (engulfing).
- Price wave higher low to be seen, this is the moment of opening a buy position.
- A sideways movement in the area below the trendline would happen.
- Moving averages with 40 and / or 50 days to be penetrated by the price.
- Note that you can use moving averages by connecting the highs or lows. Typically, the period of sideways from a larger moving average will indicate when a sideways moving average with a smaller trend.
Panic selling naturally creates the opportunity for traders to open long positions with a lot greater benefit. Those who know when it will happen panic selling will potentially benefit more from phase retracements or price movements that occur after that.