Buying the dip refers to the strategy of buying assets when the price has dropped. The trader anticipates that the price will bounce back and increase in value – consequently, he will make a profit! Buying the dip is a trading timing that predicts (often through technical analysis) how the market will move in the future. Buying and selling decisions are made based on predictions. This trading strategy is applicable to all types of assets, such as stocks, indices, currencies, cryptocurrencies and commodities. In this post, you will learn how to automate the process of buying the deep for optimal profit!
What is the dip?
The dip is often assumed to be the opposite of a bull market. A bull market is the market moving up (followed by a pullback), then up (followed by another pullback). This two-step pattern is referred to as a rising wedge. A low or a bullish crossover of this wedge is the dip. However, a ‘dip’ could also be a trend reversal, whereby the recent bullish trend is reversed. The technical analysis view of an ‘up’ trend is very different from that of a ‘down’ trend. Do bears have an edge? According to statistical theory, bears have a statistical edge over bulls. The general question is: Does the technical analysis rule apply in bear markets? Different styles of technical analysis are applied to bear markets.
Why buy the dip?
Buy the dip exists as a way of predicting the price movement of an asset. When an asset price begins to decline (which happens to every asset) the dip occurs. If you buy the dip, the time it takes for the asset price to go back up can be calculated. The profit for buying the dip can be a short-term gain or a long-term loss. When the bottom is reached, the long-term trendline (yellow line) starts to move upwards, which signals that a price correction is over. In theory, if the price has dropped too low, then it should rebound and increase in value, meaning that the price will increase significantly and that the buyer will make a profit.
Buying and selling strategies for the dip
Generally speaking, trading in the stock market can be divided into three different types of strategies: “times” buy (meaning buy at the low and sell at the high); “times” sell (meaning sell at the low and buy at the high) and “times” hold (meaning hold the asset). All three strategies have their advantages and disadvantages. There are some best ways to increase your chances of success – time your trades! Each market trade is made based on a certain time frame. For example, the U.S. stock market trades usually trades from 8:30am to 4:30pm in the U.S. However, the stock market trades in a different time frame in each individual market. On the other hand, cryptocurrencies markets trade 24/7.
Pros and cons of buying the dip
On the positive side, the approach of buying low and selling high produces impressive financial gains. Buying the dip provides one with potential opportunities to make huge profits. It is even possible to make so much money that it will give you an opportunity to buy a house! By focusing on the assets in question, the trader can capitalize on the downward trend. He/she will be the first to buy the assets at a discount, then wait for the price to bounce back and make a profit from the appreciation of the asset. At this point, the asset may start rising in value and be the reason why the trader will make an investment profit. So, the technique of buying the dip is a very attractive way to start off investing, but beware: a proper strategy is needed to get the most out of the strategy. One must know when exactly to take profit; otherwise, if you wait for the price to appreciate further, it may begin to dip again.
In order to free yourself from all these hassles, use a trading bot for automation of the process of buying the dip. The best auto crypto trading robot is the Royal Q (Quantitative) bot that is driven by AI and Dollar-Cost Averaging strategy. The Royal Q bot trades for you via a crypto exchange such as Binance. Click here to get started.