“Buy when there is blood in the streets, even when the blood is your own”
- Baron Rothschild
If you are involved in the crypto scene for a while, you know that the phrase “buy the dip” has always been used as an optimistic approach to a temporary pullback in the market. But this time, in 2021, it is a bit different. On the daily time frame, Bitcoin has been falling continuously since registering a new all-time high ($64941), making several bull traps, and making multiple lower lows. Hence, for most retailers and even whales, buying at every dip may not be possible, and we’d wonder if doing that will only decrease their buying power when it’s really the time to buy the dip.
Therefore, in situations just like these, it is vital to devise a strategy that the investor is most comfortable with and act on it instead of getting trapped. Before buying the dip, there are few factors that one needs to consider to get a better look at the market.
Volatility
Bitcoin has always been one of the most volatile assets globally. After the new ATH, it’s the battleground of bulls and bears fighting over control of the market, and hence it has been more volatile. When one of the bulls or bears gain control over the market, volatility will be declining (relatively).
Bull traps
Until Bitcoin or any asset keeps making lower lows, it’s bearish, and if they rise in price, it could be a bull trap. Bull traps are tricky, and there is not a single indicator in the world that can correctly identify them. But if you spot a rising wedge or a small time frame (less than 1 day) ascending channel, it is probably a bull trap.
Bear market?
Bitcoin is perfectly imitating the Wycoff pattern that makes it super bearish on bigger timeframes (more than 1 day). BTC also keeps on making lower lows which also signifies a bearish trend. A bear market is a possibility one cannot discard, and one has to strategize accordingly.
Some strategies that can help in a bear market
Dollar-Cost Averaging(DCA)
Dollar-cost averaging (DCA) is an optimized and flexible investment strategy that lets investors buy the dip and simultaneously not miss an entry in the position. In DCA, an investor divides the total allotted amount for that particular asset and invests that money in a fixed period. The purchases have to happen regardless of the asset’s price and at fixed and predetermined intervals. DCA is the perfect tool for tackling the volatility in the crypto, maximizing profits at the same time.
HODL
Holding On To Deal Life or HODL is the perfect technique in a growing market like crypto if you are an investor willing to wait. Instead of panic selling and FOMOing, if you bought the top and really believe in the asset, you can just hold it until your target is achieved. The buyers who caught the BTC top in 2018 are still 2x than their initial investment. And those who are holding Bitcoin since the early 2010s are already rich.
Wait for trend confirmation
In a tricky market, trend confirmation is crucial; making sure that an asset has broken out or broken down can be very helpful. Waiting for a retest after a breakout may make an investor miss lower entry points, but it also saves them from buying higher when they could actually buy much cheaper.
When is the right time to buy the dip?
Many suggest that Bitcoin might go lower than US$27K while many suggest sudden pumps that might break BTC successfully; in a confused market like this, catching the bottom could be challenging but not impossible.
Instead of following an influencer or some celebrity, one can just DCA and hold the asset once the trend is confirmed. BTC has multiple strong supports below USD$33K, and breaking them could be challenging, but once broken, one can also buy every local(<4h) low in small parts until the bullish trend is confirmed.
With BTC, buying low and selling high is always possible if an investor can show patience; in a volatile market like this, patience is the only thing that can bring profits.
