What is buying from the dip, or, the “Dip Strategy”?
First of all, we’re going to explore the essence of this action. Buying a financial asset at the dip means buying it immediately after the asset price drops, or dips so to speak, in hopes that the price would rise again soon. Investors, in general, use such a tactic to make a profit in the short term. This tactic is called “buying the dip” in stock markets.
Buying a financial asset (stock, cryptocurrency, etc.) at the bottom price is essentially different from investors’ classic strategy of buying at a low price and selling at a high price. At first, it can be difficult to distinguish these two strategies. In the “buy the dip” strategy, transactions are made by asking two basic questions:
- Has there been a sudden/significant drop in the price of a financial asset?
- Is there any reason to believe that if there was a decline, there would be a rise?
If the answer to both of these questions is “yes”, the purchase could be a wise one. Investors will trade in anticipation of gains at this point. This strategy is most often used on the stock exchange.
Of course, when doing this, you should consider the fool trap that is called “margin”. In the crypto market, just as in any kind of currency operation be it monetary or crypto, the exchange market providers usually have a gap between their selling and buying points, and this is called the margin. This would actually work as a fraud-safe operation, but as far as it concerns you, the narrower the gap, the more chances of you making a profit faster and repeatedly.
Let’s say your favorite coin has fallen on the rollercoaster for 2 weeks, and in the last couple of days, the graph slowly becomes stabilized with tiny spikes of ups and downs.
This is just like the silence before the storm, and investors usually make their decisions at this point, because this is also a good indicator that many other people would start buying assets and practically lift the profit together.
After considering the risks and the margin levels, you would buy the crypto during a down spike, let’s say at $1.00, and the selling price would be $1.20 (meaning the margin is .20). The easiest thing you’d do is to carefully watch the process and decide if it’s profitable or not.
On a wider view, if the graph shows a little lift, and when the price hits above $1.21, you have two choices of either reversing your order (if you believe it would fall again), which would give you the profit of $0.01 per piece of that coin, and wait for the fall this time.
This situation overall is like wandering at the bottom of the sea to see if you can find the things you need. If you are using this method on the coins you truly believe in, you can wait for a certain period of time when the price remains stable.
Risks
There are some risks to the “buy the dip” strategy, a.k.a. buying at the bottom price. As mentioned above, it is really necessary to have reason to believe that the price will rise. If there is no reason for the price to rise, it would be unwise to use this strategy. If the available data does not give a clear picture of the price, it may be healthier to abandon the strategy altogether and consider a new one, otherwise, your profits can be seriously damaged.
The “buy the dip” strategy tends to work better with financial assets in an uptrend. Downturns, also called retracements, are a normal part of an uptrend. As long as the price makes higher decreases (in retracements) and more increases in the subsequent trend movement, it can be concluded that the upward trend is strong.
Conclusion
It’s no surprise that investors try to increase their profits using many strategies. In addition to technical and basic assistance in doing so, they can also resort to methods such as the strategy mentioned in this article. It should be noted that the main focus should be on controlling the risks and making a strong plan. As a general note, investors who do not want to take a loss should make the most of their risk management in all types of strategies they use.
In the light of the data expressed by mathematical algorithms, we can conclude that such events can occur in any market. These algorithms predict when a market will dip or peak. IXFI allows you to access these determinants in real-time and with ease. Whether you want to buy the dip or not, Your Friendly Crypto Exchange offers you the most optimal trading experience. Register by completing a quick KYC and get started.
Disclaimer: The content of this article is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial and fiscal circumstances.
Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.
Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.
