Panic selling occurs when a stock price rapidly declines on high volume. This often happens when some event forces investors to re-evaluate the stock's 澳洲幸运5官方开奖结果体彩网:intrinsic value, or when short-term traders are able to force the stock price down far enough to trigger long-term 澳洲幸运5官方开奖结果体彩网:stop-losses.

The entire process creates a tremendous opportunity for 澳洲幸运5官方开奖结果体彩网:bottom fishers to initiate long positions, especially if the event behind the panic selling was non-material or speculative in nature (such as an investigation by the SEC or an analyst opinion). Here, we shed light on the pa🐠nic-selling process and introduce a model that can help you predict the right time to take a lon🎃g position after panic selling occurs.

How Does Panic Selling Occur?

Panic selling happens in several phases. The image below illustrates a typical panic selling scenario that occurred as a result of an 澳洲幸运5官方开奖结果体彩网:SEC investigation. The company in this example is Doral Financial, a corporation whose primary business was mortgage banking before failing in 2015. This chart c🦂an be read as a general illustration of what happen𓆉s in panic-selling situations.

Let's break down what happens at each numbered step in the chart:

Step 1: Something occurs that caus🍌es the stock price to rapidly decline on high volu✃me.

Step 2: Eventually, a high volume day occurs when buyers and sellers fight for control of the trend. The winner then takes t꧒he trend on low follow-up volume.

Step 3: If no significant trend change occurs at point 2 (i.e., a 澳洲幸运5官方开奖结果体彩网:continuation), then there🍸 is typicallꦺy another point of high volume in which a substantial reversal (long or short term) may occur.

Step 4: This process continues uꦿntil a long-term trend is established andꩲ confirmed with technical or fundamental factors.

Now we'll look at how we can predict when a trend change is going to occur.

The Exhausted Selling Model

The 澳洲幸运5官方开奖结果体彩网:exhausted selling model (ESM) was developed to determine when a price floor has been r🐟eached. This is done by using a combination of the following trend, volume, and turnaround indicators:

• 澳洲幸运5官方开奖结果体彩网:Trend lines
• Volume
• 澳洲幸运5官方开奖结果体彩网:Moving averages
• Chart patterns

The image below illustrates how this model𝕴 w🌸orks.

Notice that a variety of indicators are used to confirm that the trend has changed. As a trader, you may choose how many confirmation indicators you wish to use. The fewer confirmation indicators used, the higher the risk and the higher the reward (meaning the longer you wait for confirmatioಞn, the less potential gain there will be for you to capture), and vice versa.

The rules to using the ESM include:

• The stock price must first rapidly decline on high volume.
• A volume spike will occur, creating a new low, and appear to reverse the trend. Look for 澳洲幸运5官方开奖结果体彩网:candlestick patterns showing a struggle between buyers and sellers here (i.e., cross patterns or engulfings).
• A higher low wave must occur.
• A break of the predominant downward trend line must occur.
• The 40- or 50-day moving averages must be broken.
• The 40- or 50-day moving average must then be retested and hold.

Note that you may use other 澳洲幸运5官方开奖结果体彩网:moving averages—🌃ideally, ones that connect highs or lows. Typically, a break of a larger moving average is more indicative of a trend break than smaller moving averages.

As you can see, the ESM combines several tec꧂hniques to ensure that the trend has changed for the long 🔯term.

Now let's take a look at the image below, which will show the ESM in practice.

Chicago Bridge & Iron (CBI), which merged with McDermott International in 2018, announced that its earnings would be delayed, which sent the stock down 16 percent in a matter of hours. First, we can see that the low was made on high volume just before 11:26 a.m. Next, the price moves up slightly, but eventually forms a 澳洲幸运5官方开奖结果体彩网:descending triangle, from which we dre൩w a trend line (indicated here by the blue lin♌e).

Next, the price breaks through the trend line and moving averagꦑes (indicated by the blue dot on the left). It then retraces to the moving averages (shown by the blue dot on the right) before moving upwards.

Finally, we can see that CBI turns around and returns to its previous levels after all of the confirmations are present. Note that if you would have entered after just one or two of the indicators, you would have m🤪ade more profit, but increased the risk of the trade.

The Bottom Line

Panic selling naturally creates great buying opportunities for well-informed traders and investors. Those who know when the selling is over can benefit from the 澳洲幸运5官方开奖结果体彩网:retracements/turnaround that often occurs afterward. T🧸he ESM explained here provides a safe and effecꦑtive method to determine where the best entry point is, and the ESM's use of multiple indicators can help you avoid costly mistakes.