From time to time, there are days on the financial markets when it seems that the world has simply gone mad. You turn on the ticker tape and see stocks, indices, or digital assets falling like a stone. At such moments, even experienced investors feel a chill down their spine, not to mention beginners who are facing a wholesale sell-off in “everything is lost” mode for the first time.
But before making any sudden moves, it’s important to understand the nature of such declines and learn to respond to them strategically, not emotionally.
Why Does the Market Suddenly Сollapse?
Almost every large-scale sell-off is triggered by fundamental factors: geopolitics, macroeconomic news, regulatory decisions, or corporate risks. However, there is an important nuance – the market reacts not to facts, but to expectations. And expectations thrive on rumors.
In most cases, the market “collapses” before official confirmation is released. Algorithms, market makers, and large hedge-funds are the first to react, and they are the ones who trigger a wave of aggressive selling.
Impulsive Declines: What They Really Mean
When the price falls sharply, quickly, and almost without stopping, it is almost always a sign that aggressive market sales are at work – large volumes of orders that “hit” the bid stack without waiting for a better price.
Such movements are never random. This means that:
- someone really wants and needs to sell right now;
- demand cannot absorb this pressure;
- the market is moving downwards “in a vacuum” because liquidity is thin.
That is why an impulsive drop is not the best place to buy.
Catching the Bottom Without Aggressive Buying Is a Bad Idea
Many people think, “Well, the price has already fallen by 15%, so the bottom must be somewhere around here.” Nevertheless, the market is not obliged to rebound just because you want it to.
The bottom is only formed when an aggressive buyer enters the game. If there are no market purchases that actively knock out sell orders and stop the downward momentum, the market may continue to fall. Yes, the entry point after stabilization will not be the lowest. And that’s okay, because you buy:
- when there are signs of a trend reversal;
- when competitive demand appears;
- when buyers begin to outweigh sellers.
This is much safer than desperately trying to catch a falling knife.
As long as the market does not show aggressive buying, it is more logical to focus on selling rather than buying.
It may sound paradoxical, but the truth is:
- if the market is falling without big counter-purchases, it is weak;
- if there are no buyers even at extreme levels, the situation is not yet exhausted;
- if sellers dominate, any long trades are high risk.
At such moments, it is strategically correct to:
- avoid buy deals;
- reduce high-risk positions;
- transfer part of the capital to cash (for the stock market);
- or work towards a decline.
What Should You Actually Do?
1. Calm Down and Don’t Act Impulsively
The first step is to do nothing. Seriously. Panic decisions are the worst decisions in finance. It’s better to take a break, evaluate the information, and look at the market with a clear head.
2. Look For the Cause, Don’t React to the Noise
Ask yourself: What triggered the decline? How fundamentally significant is this event? Is this temporary information noise or a structural change in the market? If the news is truly global (for example, a liquidity crisis or a serious default), the decline may continue for a long time. If it is an emotional reaction to a hypothetical problem, the market usually stabilizes quickly.
3. Wait for Fundamental Stabilization
A slowdown in the pace of decline is not a signal to buy. The market only becomes safe when:
- the information background has become clear;
- official comments have appeared;
- the risks have become understandable and measurable;
- the worst expectations are already reflected in the price.
Until the fundamentals settle down, buying is a game of blind man’s bluff.
4. And Only Then Look at The Technical Picture
What to look for on the chart:
- the appearance of buying volumes (big volume + bullish reaction after);
- impulsive buyback movements (so-called “buying tails”); large tails in candles in the support zone often indicate a large limit participant;
- the return of prices above key levels.
These are signs that demand is returning to the market.
Chart example
Note: for volume analysis, it is better to focus on the analysis of futures trading volume.
5. And Only Then Gradually Enter
It is better to enter in parts rather than with one large position. This will improve your entry point and reduce risks.
Final Words
A sell-off is not the end, but the beginning of opportunities (only for the disciplined traders!). The worst thing you can do is buy the first rebound without analysis. The best thing is to wait for a real buyer to appear. Not a mythical “bottom here,” but specific, visible aggressive market purchases on the chart. Only then does the market show that it has gained strength, not just inertia.