6 Rules for Buying the Dip in the Crypto Market
Buying the dip is very straightforward – you need to “buy low and sell high.” The strategy is based on the principle that every market has bullish and bearish cycles. In the bear run when the value of a financial asset drops you buy it, and then you sell the asset once the market recovers and becomes bearish for a higher price.
There is a risk though, since the crypto market is exceptionally volatile, particularly with low cap coins, as the strategy is dependent on the price of your chosen asset recovering and not sinking even lower.
In this post, we’ll explore 6 simple strategies for buying the dip at the right time and in the right way.
To make buying the dip profitable try to follow these simple rules:
Rule 1: Determine the Trend
Is the current crypto market bullish or bearish?
A bear market occurs when stock prices fall 20% or more for a sustained period. In contrast, a correction is a brief asset price drop of at least 10% from its most recent high, and it can occur during a bull market. These offer great opportunities for buying the dip.
You should only buy the dip when sentiment is bullish and trending upward. While it is possible to profit from buying the dip in a bear market, there is a danger the price could continue to drop, dipping further before it recovers.
Rule 2: Trade Established Assets
Not all coins are created equal. Some have valuable utilities and technical capabilities, in addition to a proven record of long-term viability, while others are over-hyped, such as questionable meme-coins without any clear use-case, or highly volatile altcoins.
An established, reliable coin is far more likely to bounce back following a price fall, as it already has trader trust, which leads to a higher trading volume, greater liquidity, continued project investment, a larger market cap, as well as a proven history of recovery from bear trends.
So, coins like Bitcoin Ethereum, Ripple, Litecoin, and Solana have proven their resilience and make for a safer purchase in a dip.
Rule 3: Identify the Cause of the Dip
Downturns can occur for all kinds of reasons like a war, a pandemic, political unrest. Other factors that can impact the crypto world specifically, include new government regulation or the collapse of an exchange or cryptocurrency. Brief dips often happen if a coin was overvalued, and a correction will soon occur.
Is the current price drop the result of a major crisis, or just a temporary bump in the road, which is likely to smooth out quickly?
Identifying the reason prices dropped is critical for deciding if and when you should buy the dip.
Rule 4: Implement a Dollar Cost Averaging (DCA) Strategy
Buying the dip can be performed with a single purchase or through multiple trades, using a Dollar Cost Averaging strategy. This involves dividing your available investment capital into smaller amounts that are used to make purchases at regular intervals.
It is very hard to know whether a falling cryptocurrency has reached its bottom or has further to go, so by making smaller purchases each time the price falls, a DCA strategy enables you to minimize the risk of volatility on the overall investment.
Rule 5: Utilize Technical Indicators
If you want to understand the current underlying market trend and identify patterns, here are a number of valuable technical tools available to you.
One example of a technical indicator that can help traders identify market trends, and decide when to buy the dip is the Relative Strength Index (RSI). It calculates recent price movements on a scale of 1 to 100 and shows when an asset is over or underbought.
Another example is the Moving Average Convergence Divergence (MACD) indicator. This is a momentum oscillator, which measures how much the price of an asset has changed over a given period. MACD displays the relationship between two moving averages of the cryptocurrency’s price to show changes in the trend direction, momentum, strength, and duration.
Rule 6: Use an Automated Trading System
If you don’t have the time to consistently keep an eye on the highly volatile crypto market so you can respond as soon as an opportunity emerges, a bot might be your best bet.
An automated trading system can track prices, analyze market trends and execute trades on your behalf. They can perform all types of strategies, utilizing a variety of technical and fundamental tools, acting emotion-free, with a speed and efficiency a human cannot match to make exactly the right move, at the right time.
Here at ArbiSmart, our EU authorized, automated crypto arbitrage platform, generates up to 49% a year in passive profits on a huge selection of FIAT and cryptocurrencies and up to 147% a year on RBIS, our native token. You simply sign up , deposit funds, pick an investment plan and let the platform do the rest, earning you consistent returns that can be calculated in advance, and are paid out daily.
If you want to learn more about algorithmic trading systems, or a variety of crypto strategies, check out the ArbiSmart blog.