In this article we take a look into the methods and techniques you can use to learn how to buy the dip and sell the top in 2020.
Bitcoin and Altcoins have captured the attention of retail investors. Everyone, from young to old, is buying and selling cryptocurrencies.
In order to support the increasing demand, crypto exchanges have appeared all over the world. As a result, tens of thousands of individuals are able to “buy the dip” and make a living directly through digital assets.
Does that sound like something you’d like to do as well?
If so, there are many ways to contribute to this financial revolution in order to get a piece of it and in this article we explain the ins & outs:
- How you can use Dollar Cost Averaging to average out the price of your buy orders.
- How to buy the dip and sell the top in an efficient way
- An introduction to the risks and dangers of buying at a low price point
- The best tools you can use for price analysis and speculation
Now when you got the sneak peek on what’s about to come – let’s dig in.
Dollar-Cost Averaging: How To Buy Cheap, Despite Volatility
Dollar-cost averaging (DCA) is an investment strategy designed to protect investors from short term volatility.
This method of investing is often implemented by smart traders that are looking to minimize their losses and increase the profit potential.
If you believe a particular asset is going to increase in value over the long term, but you are not sure where the price will go in the short term, this method might be the best investment strategy.
DCA simply stands for repetitive purchases of a set amount on a set interval of time, in order to acquire an asset at the average price of a given period.
For example, say you bought $100 USD worth of Bitcoin every day; at the end of the month, you would have accumulated $3,000 worth of Bitcoin. You could also make a $3,000 purchase at the average price of that month. It would be exactly the same.
By the same principle, assume you bought $3,000 USD worth of Bitcoin at the beginning of each month, for a whole year. At the end of that year, you would have accumulated the equivalent of one big purchase of Bitcoin at the average price of that year.
The removal of the uncertainty created by short term volatility is the main benefit of this strategy. Rather than taking the risk of trying to buy at the lowest price, you have certainty about an average price over a given period of time.
If you were certain that the price of an asset was going to increase from now on and for a longer period of time, you would buy in bulk now and sell at a profit later on.
However, if we have learned anything from the world of cryptocurrency it is that you can never be certain about anything. This is exactly why DCA is a very useful investment method, especially for inexperienced traders.
It is meant to be used by buyers who believe in the fundamentals and are looking to hold onto their coins for the long term.
This strategy works great for buying during a bear marketing and during the early stages of a bull market.
It also helps you profit from the ending stages of a bull market.
Cryptocurrency prices can be measured by percent gains or losses on a 24-hour or weekly chart, as seen on coinmarketcap.com.
When the price percentage of a particular asset is increasing, from +1-5% a week to, +10-20% on a consistent basis, that’s a good sign you are in a fully-fledged bull market.
In this case, HODL on, but start preparing to sell.
There’s no guaranteed way to help you sell at the top, so at the end of the day, you will have to be the judge of how much is too much and when it is time to take profits.
Buy the dip strategy
Another old school “trading strategy” in Bitcoin is known as “Buy the dip”.
The investing term is sometimes referred to as “HODL” and has made people considerable amounts of money, allowing them to ride the bounce upwards from the occasional volatility of the crypto markets.
When you are considering how to buy the dip, you are trying to catch the bottom of a major correction or a pullback in the price of a cryptocurrency. The more volatile the dip, the better the opportunity to earn.
Nevertheless, this method carries a significant risk that you should be aware of – the risk of speculation.
For example, you may assume that the price has found a bottom and buy-in, only for it to drop even lower for a longer period of time.
For that reason, and in order to minimize risk, it is essential to “buy the dip” during a bull market.
Keep in mind – This quote was popularized specifically with Bitcoin and not with Altcoins. We’ll talk more about this in a moment.
Moreover, buying the dip successfully gives you a lot of options.
If you are a swing trader, it sets you up perfectly to sell during the next volatile upswing, where, if you were up for it, you could buy back again when the price declines.
If you buy the dip low enough and the prices start to increase, you are ‘in the money’ and can shoulder almost any volatility, since you bought for a relatively low price.
Notice the chart below. It is a monthly candle chart for Bitcoin in the bull market that went on from the beginning of 2015 to the end of 2017.
Almost all of the candles that I pointed at below are red candles, meaning the monthly closing price was lower than the opening price of that same month.
Not all are like that though. Some candles may see a significant correction within the same month, such as the month of July 2017.
Notice also that all these ‘lows’ or correction candles ended at a ‘higher low’ than the previous ones.
This means that the new lows are higher than the longest correction candle before it, even if a recent price drop has occurred.
This sign is a common indication of a bull market, especially when the trend occurs for a longer time.
Risks and dangers of buying the dip
In the above chapters, we have touched upon the risk of speculation.
But this strategy has more risks and dangers.
For one, what happens when you decide to “buy the dip” during a bear market?
In this case, utilizing the “HODL” method can be devastating, even for smart traders and seasoned pros.
The consequences of buying during a bear market are best summarized by popular memes that came out over the past year, such as this now legendary video “buy the dip” meme:
Long story short, the worst case scenario of buying the dip in a bear market looks something like this:
Notice that if you sold the local top, in other words, sold in the following upward swing, you’d still be in profit.
Swing trading, however, is easier said than done. In more detail, this process refers to buying a short-term dip and selling at a short-term high in a downtrend market.
We recommend new traders to first get a good understanding of the method and how it differs from the more common “day trading” before attempting to practice swing trading.
Here is a great resource if you are interested in learning more about Swing Trading.
Something to keep in mind
There are two, very useful tools that will help you buy the dip while lowering your risk.
So, in this section, we’ll go through the tools that will make this wild ride a bit more enjoyable.
Tradingview; chart analysis and alarms tool
Tradingview.com is a price chart and technical analysis platform. For many, it is the end-al, be all of price analysis.
The platform can be used as a fully fledged social network and as a rich charting environment.
It also offers a wide exposure to assets and trading pairs, both for crypto and traditional markets.
Tradingview lets you set alarms at various price points, or even when certain indicators are triggered. This way, you will know when the action is taking place and make decisions.
If you don’t have a Tradingview account and want to trade you’ll want to get one and start learning how it works. And the best parts is, the basic features are free to use.
Now that you know all about this tool, you can start practicing trading strategies outlined on our ultimate cryptocurrency trading guide.
Coinmarketcal; Market sentiment projections
We all know how certain events affect the price of cryptocurrencies. A new partnership, a halving of mining rewards or a coinburn. All these events can help you predict whether people buy or sell a coin.
And the best tool to use for this case is Coinmarketcal.
This platform helps investors get an overview of upcoming events for different cryptocurrencies. Aside from that, users of the platform can actually vote on the eligibility of these happenings.
This is due to everyone being able to post an event on the platform.
As such, you can utilize this tool to predict a coin’s price in the short term and invest accordingly.
Is It Bull Market Yet?
This is probably the question millions of people have asked during the past few months.
It’s like the only question that matters and we have the answer (kind of).
Usually, the beginning of a bear market can be measured by a correction of approximately 35%.
The same rule applies to the bottom of a bear market. And recently Bitcoin saw a recovery that went past these levels.
Here’s a weekly chart of the recent price action in Bitcoin. A correction all the way down to $3,145 USD, and back up to $8,000 USD a few months later.
Many saw the green candle that occurred in the first week of April as the end of the bear market. Depending on how you measure it, it is between an upward move of 26-41%.
The following bullish action has certainly helped, but some people still have their doubts.
If that correction ends higher than $3,145 USD, then one can assume that it’s the end of the bear market.
In which case, it is the best opportunity to buy the dip and to get ready for new highs.
Buying the dip – Selling the top
The process of buying the dip and selling the top is quite simple and easy to follow.
Even total beginners can get a firm grip on the right methods.
You can choose to sell your coins but do so after you learn about the platforms discussed above. It goes in hand that you will also feel confident that a dip is coming up.
To learn how to do this, you can go through our in-depth guide on the best ways to sell your Bitcoin.
If, on the other hand, you believe that a price increase is coming up, and you feel like this is the best time to buy Bitcoin, then don’t wait.
As soon as the opportunity presents itself, take advantage of it – price dips are usually short-lived.
Getting the rocket engines ready
Where in the market cycle are we right now?
Year 2020 has started the same as 2019 – with a price increase.
So, the question is – are we in the beginnings of a new Bull market or still cruizing through the longest bear market to date?
At the end of the day, it is up to you to decide. There are no guarantees in the crypto space – only you can be the judge.
Either way, using Tradingview alerts and an exchange like Paybis to buy the dip or sell the top, may be the best way to go.
Buy the Dip Memes
And just because everyone seems to enjoy those, here are a few Buy the Dip memes you can use!
This article is written by Juan Galt. Juan has been a researcher, journalist, and educator in the Bitcoin & Blockchain industry since 2014. He has been published in major publications, such as BitcoinMagazine, Cointelegraph, New.btc.com, and Bitcoin.com. Today he focuses on fast-tracking new crypto adopters through the learning curve, teaching them industry standards of digital security, privacy, and investment at ByoVault.com.