Last week, a fan asked me whether the price drop of 30% was a shakeout or a sell-off. As soon as I looked at the K-line, I knew he mistook the seller's actions for a shakeout and got trapped at a high position.
Having been in the crypto space for 7 years, I found that retail investors are most likely to fall into the pit of mistaking a sell-off for a shakeout. They keep buying as the price drops, thinking it's a shakeout, and sell as soon as it rises. In fact, the two are worlds apart. Today, I'll use a real case to teach you how to distinguish them in 3 seconds.
Last month, there was a cryptocurrency called mec, which had a non-genuine name. It rose from 2U to 5U and suddenly started to plummet. Many people thought it was a shakeout.
As a result, they got trapped until now. Its selling method is actually very typical. In the first phase, there was volume but no price increase. The price hovered around 5U, and the daily trading volume was 3 times larger than before, yet the price wouldn't budge. At this point, the market maker had already been quietly selling off.
They just used a small amount of capital to prop up the price, making retail investors believe it could still rise. In the second phase, there was a sudden cliff-like drop. One day, the market maker removed the support orders, and the price fell directly from 5U to 3U with no rebound in between.
At this time, the trading volume was still large, and many retail investors thought it was a golden pit and rushed in to bottom-fish, resulting in them all getting trapped. In the third phase, there was a rebound that lured in more buyers. The price bounced from 3U to 4U, looking like a V-shaped reversal. However, upon closer inspection, the trading volume during the rebound was getting smaller. This is the market maker luring in buyers to trap the last batch of retail investors before continuing to sell off.
And as for shakeouts, in the previously discussed GAMA case, although there was also a drop during a shakeout, the trading volume was very low during the decline, and the volume would increase during the rebound, and it wouldn't break through key support levels.
To summarize, to distinguish between a sell-off and a shakeout, you look for 3 signals: Observe the trading volume. In a shakeout, the drop is on low volume, while the rebound is on high volume; in a sell-off, the drop is on high volume, and the rebound is on low volume.
Look at the support levels. A shakeout will not break through key support, while a sell-off will crash through it. Look at the speed. A shakeout drops slowly and rebounds quickly, while a sell-off drops quickly and rebounds slowly.
Next time you encounter a crash, don’t rush to bottom-fish or cut losses. First, look at these 3 signals to distinguish between a sell-off and a shakeout, so you won't be led by the market maker. @阿二说币
