As cryptocurrency has become increasingly significant in today’s financial market, investors have started looking for new strategies to make the most of their crypto game.
You may have heard the phrase “buy the dip” several times, but do you know what it means and, most importantly, how it works? It is worth mentioning that playing the crypto game may be exciting, but it implies serious research and work. You should first document what this tactic implies if you were told to turn to the “buy the dip” strategy. To make it clear from the beginning, it is an investment strategy used to benefit from the cyclicality in stock prices in time, but it is not as simple as it sounds.
For more information and recommendations regarding the “buy the dip” strategy, read on the following lines:
“Buy the Dip” Meaning
Any trader new to the crypto world should have minimum knowledge about what cryptocurrency is and only then start looking for tactics to make profits. That being said, cryptocurrency means electronic coins based on blockchain technology, a state-of-the-art concept that promises to change the financial market forever. Like physical money, digital currencies are stored in electronic wallets that can be hardware, software, and paper. The purpose of any trader or investor is to make profits by making use of various tactics.
“Buying the dip” refers to the tactic of taking advantage of a downdraft in stock or, simply put, “buy low, sell high”. It is nothing new under the sun since this strategy has been used for centuries in various industries. But when it comes to cryptocurrency, it has a somewhat more targeted approach. The decline in stock should meet certain parameters like, for example, that stock has to drop more than a specific percent from a previous peak. If you turn to this tactic, you should also be sure that the stock prices will rise again, which means you have to carefully study the stock you are interested in before making the big move. For example, if you intend to trade Ethereum, you should regularly check the price that is constantly updated on the Binance platform. This kind of buy-the-dip tactic requires timing the markets so that you can anticipate other traders’ moves and get ahead of them. The sell-the-rip traders are your competitors, in this case, but we will talk more about them in the following. So, what is the morale? You should do your homework before buying the dip to avoid unpleasant surprises later.
“Buy the Dip and Sell the Rip”
The buy-the-dip strategy is often accompanied by the phrase “sell the rip”. And in essence, these two processes complete each other. As someone who chooses to buy a stock that has declined, you usually wait until it rises again to sell the rip. That means you sell stock at an expected peak in the cycle. But other sell-the-rip traders are waiting just for the same thing, so you must carefully consider the price volatilities and time the market correctly.
How to Buy the Dip
This tactic is mostly about outguessing the market, which makes it a bit tricky, but if you become experienced enough in this domain, you should know how to anticipate the market’s sentiment. Starting looking after dips is the first thing you need to do, but the amount of data and stocks might be confusing. Our advice would be to look at sectors with significant share price drops and then examine the common exchange-traded funds tracking these sectors. Companies with big declines may lighten your path and give you essential clues on the next big dip you can buy. However, it is not recommended to invest in individual stocks but low-cost index funds, as the latter adds variety to your portfolio and is less risky.
It would also be helpful to up your 401(k) contributions to buy extra shares of investments at a lower price. If you have an individual retirement account (IRA), we recommend making substantial investments regularly rather than occasionally contributing with a lump sum.
Is “Buy the Dip” a good strategy?
We cannot say that a strategy is good or bad because what matters the most, in this case, is who is using it. The truth is that it is risky, but after all, cryptocurrency, in general, is risky since its volatile character. But we like to believe that the volatility characterizing digital coins is a matter of time. Crypto is still in its early stages; that is why it takes time to establish. However, with the recent technological advancements and what promises to be epic, Metaverse, cryptocurrency is believed to gain ground. Thus, many investors worldwide use various strategies to make the most of their trading, including the buy-the-dip tactic. This means waiting until a certain stock falls in value to buy the dip and further sell the rip – that is how you make a profit. Although there is no guarantee of future results, if you predict the market well, you will likely win. These predictions can be learned, so the more you read, the more you know. If you are not willing to take the risk but still want to try, you can start with a set amount of money you are comfortable with so that you have almost nothing to lose in case you are not the winner of the game.
Buy the dip – but keep it for the long term
If you master this strategy, it can take you far – buying the dip and holding it for the long term. This way, you benefit from what is commonly known as reversion to the mean. Remember from this story that you can ride stock for higher long-run gains as there are chances for them to return to their long-term average gains. For example, if you invest in stocks that have returned 10 percent every year for 10 years, you are likely to earn even more than that 10 percent, as that stock can return to the initial average in time.
