Falling Knife in Crypto Trading: Tips to Avoid the Risk

Crypto traders need to be wary of many things: market sentiment, price levels related to individual cryptos, trading indicators, and more. However, nothing ever prepares you for an event called a "falling knife." In crypto trading, a falling knife refers to the phenomenon of a rapid "price drop."

A falling knife is a trading pattern, or more accurately a trading reality, that is synonymous with high-beta assets like crypto. Traders should not try to catch a falling knife; it means trying to defy gravity and opening the door to a bloodbath.

What does a falling knife mean in trading?

A falling knife is not a pattern. Instead, it is a scenario where a crypto's price is decreasing, only to continue decreasing past several support levels until it finally hits a bottom. For a trader, the idea is to identify the point where the falling knife finally hits the ground. This may be their opportunity to buy the crypto.

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