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So you are creating your technical trading strategy and it seems to go okay, but suddenly a price drop and your strategy didn't work as expected? I have been there and I feel you.

After careful study, I have come up with a way to detect price dropping. Price dropping detection is important because you can change the behaviour of your strategy during this period.

## What is Price Dropping?

To me, and therefore in this article, a Price dropping happens when in 24 hours a symbol has lost 5% or more of its price. Visually speaking, you will see a slop of 45 degrees or more like the above image.

## How to detect Price Dropping?

This is the interesting part. First some facts you have to know:

• You never know when it will stop,
• You never know how deep it will drop down, it could be 5% or it could be 40% or even more.

With this said, these are the criteria conditions I have come to:

• Must have a sequence of at least two solid bars (for bear) or blank (for bull);
• for bear slope: EMA(4, close) < EMA(9, close) < EMA(16, close),  and for bull slope: EMA(4, close) < EMA(9, close) < EMA(16, close);
• ATR(14)t-1 < ATR(14)t0;
• Closing price < BB(20, 2)'s lower band (for bear) or Closing price > BB(20, 2)'s upper band (for bull).

Let's verify it with this graph.

## How to know when the Dropping has finished?

As I have said, you never know, however, there is a way to protect you. You may use one of these approaches:

• Evaluate when RSI(14) < 25 (for bear) or RSI(14) > 80 (for bull); and my favourite
• increment and decrement the period of time you do your evaluations.

If you want to keep it simple, you can double-time it, but if you want to get more accuracy, you can use a statistical approach, by analyzing last year's price droppings, you can use a standard deviation and a simple rule as follows:

• if consecutive bar (b) <= consecutive bar average (μ), then increment the time period,
• otherwise, start decrementing by the same proportion.

When using a standard deviation approach, the μ (mean or average) has a special meaning: 50% of the consecutive price drops (b) are there. So, it is more likely that there will be another solid bar than a change of trend.

When the b reaches μ, the logic becomes different. Pretend, μ = 3, if b = 4, it becomes less likely that there is a b = 5 (5 solid bars in arrow). Meaning that a reversal may happen, so you may want to decrease your time-lapses to catch a trading opportunity.

I am not very concerned when this happens on a bull market, as you can sell as soon as the pricing reaches the minimum you require to make your minimum profit (according to your own strategy).

Good luck!

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