Profit from falling markets: fake breakouts as a strategy

Benefit from falling markets. Our 2020 test on declining market conditions. Here too, experience shows opportunities. You should know these aspects.

The markets, especially equities, appear to be top-notch. They haven't been around for a long time. On a short-term basis, they even fall quite often, which is related to several uncertainty factors.

First, the strongly stagnating oil price: it fell below $ 30 and would have been a good candidate for put options last year. On the other hand, risks from China are increasingly being identified. These particularly affect the leading German index, the DAX. Since many companies generate their sales as suppliers in China, DAX companies are punished if China publishes bad economic data.

The chart makes it clear: The DAX index is now breaking the upward trend line for good. For market technicians, this is often a signal that the market is turning into a bear market. In a bear market, the trading direction should always follow the bears, just as call options are always bought in the bull market.

Nevertheless, nothing is one hundred percent in stock exchange trading, every trader should know that. A strategy is the key to success - and that also means committing yourself to a probable direction. Another approach could be to wait for the market to turn again. In this case, no call options should be bought as long as the price has not risen above the uptrend line again.

Fake outbreaks as a strategy

That a market does not necessarily have to fall far, provided that he has broken important support has also been proven enough. So-called fake outbreaks are accompanied by strong increases - especially if the price should rise above the trend line again as described above. Fake bursts upwards with subsequent falls also show the same pattern, as the following chart shows. In this case, good short-term gains are often possible.

So one strategy could be to focus on fake outbreaks. However, tact is also required here, because a fake breakout is not the same as a fake breakout, or falling back or climbing over the breakout zone is not a fake breakout, see also the 4-hour DAX chart.

Traders should therefore find an analytical approach that enables them to use fake breakouts. However, these must be confirmed at the same time in a certain way, for example by other indicators.

Profit from falling markets: fake breakouts as a strategy

Choosing the right terms

Depending on the strategy, terms can of course always be the same, to be strict Ensure rules. Nevertheless, trading with put options is particularly suitable for really short-term trading because movements downwards are more panicky than the other way round.

Based on the analysis of a daily chart as above, the maturities should be between 4-12 hours. In falling markets and when an important support breakthrough, the 4-hour chart can also be analyzed and the term can be between 1-4 hours.

Conclusion - use put options

Traders can benefit from falling markets in different ways.

  1. Trading in trend direction
  2. Exploiting fake breakouts

Should a long-term upward trend be broken general definition means that you are in a bear market in this case. Investors are either reluctant to buy or sell. Choosing the direction at the short-term level should focus on falling markets as this increases the likelihood of hitting a hit.

Taking advantage of fake breakouts with put options is a little more difficult to implement. It requires an ongoing uptrend and the breakthrough of an important resistance or high. The course then falls back with increased dynamism. The dynamics arise on the one hand from panicked sales and on the other hand from the release of long positions due to stops.

The maturities of falling markets can generally be shorter in trading than in rising ones - unless traders rely on fake outbreaks even with increasing markets. In this case, the term may be shorter.

With the broker BDSwiss, traders can implement such strategies without problems and benefit from falling markets.

Profit from falling markets: fake breakouts as a strategy

How to Make Money in Falling Markets

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