Buying coins on severe drops can be profitable yet risky. Coinrule’s Catch the Falling Knife bot can automate your trades to help you periodically buy the worst performing coin in the market in the past 24 hours whilst also protecting yourself from losing everything using a stop loss mechanism.
Coins that are down a lot can often rebound; hence Catch the Falling Knife can buy into these poor performing coins and automatically sell them when they rebound using a take profit.
How does the Catch the Falling Knife bot work?
“Catch a falling knife” is a frequent phrase used to describe a trading technique that involves purchasing a very depreciated asset at or near its lowest point in the hopes of profiting from a short-term comeback.
Due to the volatile nature of cryptocurrencies, “falling knives” might be caught on a regular basis.
Coins in decline may be dangerous to buy at a fall in the price. Yet, it may still be quite rewarding in a Bull Market or when market participants’ attitudes are generally upbeat.
Panic selling occurs when the price of a coin drops significantly, causing investors and traders to dump their holdings in haste. Rather than relying just on logical reasoning, this psychological effect is much more powerful.
In addition, traders who are heavily leveraged or have a large position in the currency are quick to sell to reduce their losses.
How can these events occur?
Typically, a panic selling event takes place when a stock price drops significantly, accompanied by a substantial increase in trading volume. This often takes place when some incident prompts investors to reevaluate the company’s fundamental worth or when short-term traders are able to drive the stock price down far enough to trigger long-term stop losses in their positions.
When the market is typically trading upward, fascinating possibilities present themselves, particularly during periods when there has been a panic selling incident. Using this tactic, you will have the opportunity to catch the knife as it falls.
Coinrule’s simple If-This-Then-That approach makes it easy to build Catch The Falling Knife bots to take advantage of these oversold conditions.
Let’s look at an example of a simple Catch The Falling Knife bot built on Coinrule:
Essentially this rule periodically buys the most sold coin on the market to sell it with a pre-set take profit of 3%. The stop-loss feature that comes included with the method is designed to limit the amount of money lost in the event that the downward trend continues.
An important addition to the rule in the setup is:
DO NOT purchase the same coin more than once, together with any other coins.
Because of this, there is less of a chance that the coins currently in the portfolio would be overexposed, which would raise the total risk. In addition, the rule ensures that you do not purchase the same dip twice, thus preventing you from being stranded with coins during significant downward movements.
The chart below highlights an example on the Cardano daily chart to examine how this rule would perform:
ADA was one of the worst-performing coins on the 11th of April after its price fell by 10.47%. Catch the Falling Knife would have subsequently entered Cardano at a price of around $0.919 and then exited Cardano at a price of $0.9466, giving the user a profit of 3% on this trade.
The rule would continue this process of buying and selling the worst-performing coin on the market in the last 24 hours. You can take advantage of these opportunities on Cardano today by automating your trades with Coinrule’s Cardano trading bots.