23 January 2023 • 9 min read
If you frequent online forums such as Reddit or Discord channels, then you’re no stranger to some gallows humor when it comes to buying the dip in crypto. And if you’re one of the many people who bought crypto for the first time during the heady days of November 2021, then you’ll have done the exact opposite of buying the dip, which is to say that you bought when prices were peaking.
But what do people mean when they insist on buying the dip? More importantly, is buying the dip a good trading strategy? And by “good” we mean one thing and one thing only: profitable. In the following article, we’ll explore this popular approach to crypto trading and along the way debunk the occasional myth or two about an approach that has achieved mythic proportions.
Try as we might (and we did indeed try), we here at Trality HQ were unable to identify the exact origin of the phrase “buy the dip,” but it seems to be as old as the hills (or at least as old as the stock market).
The underlying assumption behind the statement “buying the dip” is that markets move in waves or cycles (the assumption being a valid one). Without mark cycles, there would be no market peaks and troughs, as everything would be linear without any ups or downs. From an investor’s standpoint, market peaks and troughs represent opportunities to take profit (or lose money).
As we noted in our comprehensive article on crypto market cycles, the analogy with a clock is an apt one. Just like the pendulum of a clock (yes, clock pendulums were actually a thing before digital clocks), all markets swing between highs and lows and have a midpoint, and the movement between either pole and the midpoint is known as the “regression toward the mean.”
When you try to buy the dip, you are assuming that 1) a crypto’s price has fallen from its peak, 2) that it’s a temporary aberration because the project’s fundamentals are sound, 3) the crypto’s price will rebound in the near or intermediate future, and the price will surpass the price at which you purchased the token. Investors often describe market dips in terms of bargain basement prices, with many wondering whether the current crypto market doldrums represent the dip before the rebound.
Well, one way to buy the dip is by guessing, and we’re not being facetious. The simple fact is that many newer crypto traders will often try to time the market, attempting to guess the optimal points at which to buy or sell. But it’s a bit like placing all of your chips on red. Maybe your lucky number will turn up, or maybe it won’t. In this case, it becomes a matter of blind luck, and strategic traders don’t expose themselves to the whims of fate.
As we’ll see later in this article, trying to time the market for the uninitiated is largely a fool’s errand, especially given the crypto market’s notorious volatility. And how exactly do you time a prolonged bear market “dip” when it lasts over a year (and not merely weeks or months)?
More seasoned traders will make use of crypto charts to identify possible market movements, particularly if there is a drop in price during a long-term upward trend. Here the point is not to wait until the crypto loses most of its value, but rather to profit from a temporary, non-systemic pullback, an approach that can work well enough during a bull market. However, although they can certainly be useful, charts are not infallible, which is why you shouldn’t rely solely on chart analysis. Insights into patterns and trends is one thing, but be wary of thinking of them as indicative of guaranteed profits.
In sum, a basic approach to buying the dip involves identifying the crypto; setting a target price; tracking the token’s price movements; buying the token when it does dip; establishing a stop-order loss to prevent losses if the token’s price continues to drop; and then exiting to take profit.
We’re firm believers in definitive answers, which is why we can state definitively that it all depends on the market, the crypto, and the investor. Granted, buying the dip can minimize the cost of a position as well as increase potential returns if the long-term price trend is positive and it’s a solid coin.
Nevertheless, the fundamental fact remains that buying the dip always involves risk. And while it’s true that risk is a fundamental element of trading, the risks are much greater when buying the dip effectively amounts to nothing more than trying to time the market.
Another pitfall to consider with buying the dip is that it can work well enough with solid assets, but the vast majority of cryptocurrencies remain extremely volatile, which can result in magnified losses. In the stock market, there is generally a good reason when the price of security declines, but the crypto market tends to have a logic of its own. Solana holders, for example, were left to contend with an unpleasant surprise when SOL lost most of its value in the wake of FTX’s implosion (although the price of SOL has rebounded by as much as 20% lately).
Given the crypto market’s inherent volatility, which is often an extreme form of volatility (thus the moniker “paper hands” for those who panic sell when the market drops), buying the dip can be an exceptionally risky proposition.
Buying the dip and dollar-cost averaging (DCA) are both popular investment strategies, but they differ in a number of interesting ways.
Dollar-cost averaging is an approach whereby you divide the total amount you want to invest into regular intervals, regardless of the price. One of the main benefits to this approach is that you can reduce the impact of volatility on the overall purchase. For example, if you want to invest $5000 in a cryptocurrency, you might choose to invest $500 per week for 10 weeks, rather than a lump-sum investment of $5000 at once.
Buying the dip, on the other hand, is a strategy in which you buy into a cryptocurrency when its price has dropped, with the expectation that the price will increase in the future. This is a common crypto trading strategy since the crypto market is an inherently volatile one with unpredictable and, at times, significant price fluctuations.
Both strategies can be used to invest in cryptocurrency, but the underlying logic is different. Dollar-cost averaging is useful for reducing the impact of volatility, while buying the dip is used to take advantage of price drops in the hope of a future price increase.
Aside from dollar-cost averaging, there are other, more profitable options than buying the dip. One of the more profitable ones of which you can avail themselves is copy trading, which allows you to replicate or copy the trades of successful traders, most of whom will have substantially more expertise and experience. These traders will have a proven track record of success, helping you to make an informed decision when deciding to invest your crypto.
Copy trading is also incredibly convenient. Professional crypto traders or professional quants who code and create automated trading bots have years of education and experience behind them as well as hours and hours of work each day creating and fine-tuning their algorithms.
Copy traders, on the other hand, can easily benefit from that experience through easy-to-use copy trading platforms with intuitive user interfaces that allow them to get started quickly and easily. In other words, you let the quants do all of the heavy lifting, and you can then benefit from their work by paying a reasonable fee to copy their trades or rent their trading bots (and they obviously earn a commission for their labor and expertise).
Copy trading is also a great way to learn more about trading. Whereas buying the dip can be a matter of looking for low-hanging fruit (so to speak), copy trading offers the possibility of gaining trading experience vicariously through successful traders, who apply different trading strategies in different market conditions. Not only do you benefit by increasing your knowledge base, but your bottom line (i.e., a more profitable trading portfolio) benefits as well.
The Trality Marketplace is a one-of-a-kind space that brings together crypto trading bot creators and investors for mutually beneficial purposes. Unlike other platforms with anonymous bot makers and unproven bots, Trality’s Marketplace is a carefully curated space with hand-picked creators and the best bots available, making it simple, safe, and profitable for you to copy trade crypto.
So how does it work? Flexibility and selection are two of the Marketplace’s main features. We all have highly specific trading targets and risk tolerance levels, which is why the Marketplace offers a range of profitable bots tailored to specific risk tolerances (low, medium, and high) and individual investment goals. A full suite of metrics is available, allowing you to decide on a bot based on clear, quantifiable data.
Once you’ve analyzed the metrics and chosen a bot, which has been created by some of the world’s best quants as well as rigorously tested by our in-house team of experts (who collectively have decades of experience), you simply rent it. It’s that simple.
While you are renting a bot, you will receive updates in real time whenever changes are made to a bot, and you can also check its metrics at any time. If a bot underperforms, then you can simply unfollow it at any time and select another bot. With just a few taps in the Marketplace’s mobile app (or clicks if you prefer a laptop/desktop environment), you can easily leverage the expertise of professionals by renting the most trusted bots on the market.
Remember what we said at the very beginning of this article about gallows humor? There’s a reason why there are so many memes for buying the dip.
While it can be an effective approach under certain market conditions, and if there is a specific strategy in place, it’s not without its risks.
Even careful traders can find themselves on the wrong side of the dip.
When it comes to buying the dip, there are far more strategic ways to invest in crypto such as copy trading. But bear in mind that just because the process of copy trading is automated doesn’t mean that profits are automatic.
You still need to do your own research to pair the appropriate bot(s) with your own individual needs. And you’ll also need to do your own research in order to ensure that your chosen bot(s) are suitable for present market conditions (and future ones when they arise).
But once you’ve hit on the right combination, you’ll have positioned yourself 1) to increase profits, 2) diversify your portfolio, 3) mitigate risk, 4) save time through automation, and, ultimately, 5) beat the market. And you’ll have accomplished these goals all through copy trading—renting market-beating bots built by experts and tailored to your individual investment needs.
And the best place to do it is the Trality Marketplace. But never take our word for it. Do your own research by checking out the Marketplace for yourself and exploring the many profitable bot offerings at your fingertips.