The Effect of a Downtrend

Downtrends are a HODLer’s best friend. It’s far easier to increase your BTC in a downtrend than it is to in an uptrend. This is due to the fact that during a downtrend, the majority of the market’s movements are lower which allows for ample opportunity to sell your BTC holdings and buy back at a lower price. 

 

However, do know that it can be quite tough to increase your USD during a downtrend — especially if the downtrend is quite strong. However, as stated previously you can generate cash flow if you want to keep your BTC invested amount the exact same. A quick example of how to do exactly this can be found in the example below.

 

Let’s say you are holding 2 BTC during a strong downtrend with price currently at 25000 USD and you are quite confident that Bitcoin will break through the market lows that are at 24300. You could then decide to sell 1 BTC at 25000 and then set a bid of 0.5 BTC at 24150 and a bid of 0.5 BTC at 23850. After price fills both of your bids, you will be left with an additional 1000 USD (disregarding fees). If you are intent on creating cash flow, you could then either withdraw this 1000 USD to your bank or lend it in the meantime on a program such as Gemini earn. 

 

 

With what you learned from both the volume patterns and candlestick patterns sections, notice the high volume wicks higher that occurred after a sustained uptrend. This was a very bearish sign, one that tends to precipitate a downtrend. The ensuing downtrend allowed for plenty of opportunity to increase your BTC. The white arrow below denotes where the price had moved from the first picture to the second.

 

 

Now that you know how downtrends can operate, take a look below at the common characteristics of a strong vs weak downtrend. Knowing if/when a downtrend is likely to continue is a skill that will help you immensely. The below holds true across all timeframes.

 

Strong Downtrend (likely to continue)

  1. Consistent downward moves with little to no consolidation
  2. Any moves higher are quickly met with price moving lower (this will likely show as a price wick high or an upside down V-shaped reversal)
  3. Descending triangle formation with falling highs and flat or lower lows
  4. Can be violent and seemingly appear out of nowhere
  5. Volume lower on candlesticks where price moves higher, volume higher on candlesticks where price moves lower

 

Weak Downtrend (unlikely to continue)

  1. Inconsistent, choppy moves lower
  2. Moves lower are quickly met with pullback and moves back higher
  3. Highs failing to hold and lack of enthusiasm from sellers
  4. Obvious slow-moving downmoves
  5. Volume higher on candlesticks where price moves higher, volume lower on candlesticks where price moves lower

 

Finally, there are two main methods that you can use to increase your capital during a downtrend.

The first method tends to perform better in the short-term and especially well during a downtrend that you believe will continue moving lower.

The second method tends to perform better in the longer-term and will help you increase your BTC stack.

 

Method 1: Fixed BTC investment. When you sell and buy back lower, use the same amount of BTC and send the extra USD generated to be lent on your exchange. For example — if you own 1 BTC and sell at 24200 and set a bid at 22600, then send the 1600 USD you generated to be lent.

 

Method 2: Generating BTC. When you sell and buy back lower, you can buy as much BTC as possible at lowered prices. For example — if you own 1 BTC and sell at 24200 and set a bid at 22600, then you will be able to buy back around 1.07 BTC at the price of 22600.

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