What is the reversal strategy?
The reversal strategy is based on a simple principle: “what goes up fast, tends to come down fast.” In more technical terms, this is known as mean reversion. After a large increase in the price of a cryptocurrency, its value is likely to adjust or correct, returning to more normal levels. Experienced traders use this strategy to short a coin that has risen too quickly, anticipating that its price will fall.
👉 Step 1: Find a cryptocurrency with high profits
First, look for a coin that has seen a rapid and significant rise. On Binance, this is easy as you can go to the “Top Gainers” section and see which coins have risen by 15% or more in the past 1-2 hours. This rapid rise is a sign that the coin might be overbought, meaning its price is inflated and could correct soon.
Example:
It's like being at an auction where prices are rising very quickly. You know that people are overpaying and that sooner or later the price will fall back to its true value.
👉 Step 2: Switch to the 5-minute chart
Once you have identified the cryptocurrency, it is time to be more precise. Switch to the 5-minute time frame (TF) chart. This will allow you to see short-term price movements and more clearly spot potential trend changes. The 5-minute chart is ideal for quickly analyzing the market.
Example:
Imagine you're driving and you come to a dangerous curve. If you slow down, you can see more clearly where the road is going, rather than going too fast and losing control.
👉 Step 3: Identify resistance levels
The next step is to find resistance levels. These are points where the cryptocurrency's price seems to be struggling to continue rising. If you notice that the price repeatedly touches a level and fails to break it, it's likely that the buying momentum is losing steam, meaning the coin could be ready to fall.
Example:
It's like trying to push a heavy door. If you push it repeatedly but can't get it open, you eventually get tired and stop trying. In the market, when buyers get tired of trying to push the price up, sellers take advantage of the opportunity to push the price down.
Why can this strategy generate huge profits?
When a cryptocurrency has risen too quickly, smart investors anticipate that there will be a correction. “Shorting” means selling the coin at a high price, hoping that its value will fall so that you can buy it back at a lower price, making a profit on the difference.
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