Last week, we chatted about “the dip”. What it meant to buy the dip, how to beat the dip and even how Bolu forgot his BBQ chicken dip. Sigh…
Today, let’s talk about WHEN to buy the dip.
First, allow me reiterate this point - buying a coin or token during a downturn does not guarantee that its price will rise. You need to be emotionally intelligent and aware of the market's volatility, at least in the short term. The fact that an asset is now being sold for less than it has ever been does not automatically mean that it is a good investment. Predicting dips before they occur, estimating how deep the dip will finally go, and then having enough optimism in the asset to think it will bounce back to its prior highs is usually quite challenging. Got it? Great!
A significant reduction in the value of a cryptocurrency and a solid signal that it will recover again are two requirements for buying the dip. Many cryptocurrency analysts would be reminded of the fallout from the 2017 Bitcoin price increase by the recent collapse following the stunning rise. BTC's value nearly tripled in the fourth quarter of 2017, but it lost 3/4ths of its value in 2018.
Investment in bitcoin is influenced by the erratic markets. Mindful trading is all about achieving this. It all depends on how we want to view the situation, but the buyers of the 2017 rise now have earnings that have tripled (Kachinggg).
The simple rule of thumb is that you need to put aside the fear that comes when everyone is selling during the dip, and also the impulse to buy high when it seems everyone is buying. Although the strategy isn't certain to be profitable, it is a wise and straightforward one that doesn't require a lot of expertise or technical knowledge to put into practice.
What are the advantages and disadvantages of buying the dip?
Buying the dip comes with it’s fair share of advantages, and disadvantages, but here are a few:
- Buying the dip helps you to set a lower average price for your holdings of a particular asset and this allows you to maximise your profit.
- The psychological comfort that comes with knowing you didn't buy "at the top”, that is, when the coin was selling high.
- If you buy the right assets, you get a chance to diversify your investment portfolio.
- It's mostly a method of market timing hence nothing is guaranteed.
- The probability that the asset price won't rise again or that it will take a very long time to recover is one of the biggest drawbacks of buying the dip.
- Another risk of buying the dip is that there is no guaranteed method to tell if the asset's declining price is just a passing trend or a warning that prices are about to fall even further.
- Possibly lose out on additional gains if the asset doesn't decline as predicted.
In some cases, buying the dip can be successful. To be honest, everyone would think it a wise investment to buy low and sell high, but this is easier said than done. The main problem with cryptocurrencies is that we don't know how the market will evolve. If the price of bitcoin rises in the incoming years, then today's prices won't seem like such a pretty good deal and if it loses half of its worth again, it would seem like today’s price was in fact the best deal. The bottom line is that you have to be prepared for the unknown as the cryptocurrency world is highly unpredictable.
So tell me are you considering buying the dip? 🤔