Many rush to short after a significant rise in BTC, often a combination of psychological bias and trend misjudgment.
I'll break it down for you, and then summarize a practical judgment framework for trend following vs. reversal trading.
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1. Why many people like to short after a rise
1. Mean Reversion Illusion
Seeing the price significantly higher than the past average, your intuition tells you, 'It's risen too much, it should pull back now.'
However, in trending markets, prices can stay away from the average for a long time, even accelerating upwards.
2. The opposite of fear of missing out (FOMO)
Missing the opportunity to buy at low prices makes you uncomfortable when prices rise, leading to the thought of 'getting back at it by shorting.'
The result is often being 'squeezed out' during a strong trend.
3. Betting on tops mentality
Believing you can catch the turning point ('treading on the edge of a knife' mentality), seeking a one-time large return.
The problem is that tops are often difficult to confirm, and may even be 'process types' rather than 'a single spike.'
4. Over-reliance on overbought indicators (e.g., RSI > 70)
Ignoring that RSI can remain overbought for a long time in strong trends, which could instead indicate a phase of trend acceleration.
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2. How to judge if the current trend is up, and choose whether to follow or reverse
2.1 Following the trend (going long) judgment
Price structure
Highs keep getting higher, and lows keep getting higher (Higher Highs & Higher Lows).
Key moving averages in bullish alignment
Short-term moving averages (e.g., EMA20) > Mid-term (EMA50) > Long-term (EMA200), and the price is above them.
Volume confirmation
Uptrend accompanied by increasing volume, pullbacks with decreasing volume.
Trend continuation signal
Pulling back to key support levels (like previous highs, moving averages, Fibonacci level 0.382–0.5) stabilizing and rebounding.
📌 Timing for opening long positions:
Pulling back to key support stabilizing with a reversal candlestick (e.g., hammer, engulfing bullish).
Breakout from consolidation range or key resistance level.
📌 Short Selling Reversal Signal (End of Uptrend):
Highs no longer making new highs, lows breaking previous lows.
Key support (EMA50 or EMA200) broken and declining with volume.
Large volume long upper shadow at high levels or multiple spikes followed by a pullback.
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3. How to judge if the current trend is down, and choose whether to follow or reverse
3.1 Following the trend (going short) judgment
Price structure
Highs keep getting lower, and lows keep getting lower (Lower Highs & Lower Lows).
Key moving averages in bearish alignment
EMA20 < EMA50 < EMA200, and the price is below them.
Volume confirmation
Downtrend accompanied by increasing volume, rebounds with decreasing volume.
Trend continuation signal
Rebounding to previous support turning into resistance and encountering a decline.
📌 Timing for opening short positions:
Rebounding to key resistance levels (EMA20/EMA50, previous lows) shows reversal candlestick patterns (shooting star, engulfing bearish).
Breaking down from consolidation range or key support level.
📌 Reversal Signal for Going Long (End of Downtrend):
Lows no longer making new lows, highs breaking previous highs.
Price re-establishing above EMA50/EMA200 with volume.
Large volume long lower shadow at the bottom or multiple tests of the bottom rising.
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4. A concise operational framework
Follow the trend: Use structure + moving averages + volume to determine direction and enter positions when there is a pullback/rebound to key levels.
Reversal trading: You must see structural breakdown + key moving averages being broken + volume confirmation before entering against the trend.
Remember: The probability of trend continuation is often greater than the probability of trend reversal, especially in highly volatile assets like BTC.