While cryptocurrency trading has been around for over a decade, the asset class remains in its infancy compared to industries such as the stock market. That means a lucrative opportunity for newbies searching to capitalize on crypto’s potential.
Nonetheless, that also means massive risks, considering the wild price changes. Thus, you will need various techniques to navigate the associated risks. Dip buying is among the approach that cryptocurrency investors use. This content will analyze the ‘buy the dip’ strategy and its benefits.
What’s Dip Buying?
Dip buying is a terminology you will encounter whenever in stocks and crypto. It’s a strategy where participants purchase assets at discounted prices to benefit when the tokens surge. Like other asset classes, the crypto space has its seasons or cycles. The market could trend upward (bull market) or slump (bear market).
So, dip buying means purchasing assets when prices fall and waiting for returns during bull markets. Expert market players set limits when implementing this method. For instance, some will only invest when prices decline by 20%. That can differ from person to person (depending on the trader’s strategy).
What to Consider Before Dip Buying?
Fundamental Analysis
Conducting a fundamental analysis of any crypto asset is crucial before you invest. Unlike stocks, crypto projects lack study facets such as balance sheets and profits. Therefore, the procedure is different when dealing with cryptocurrency.
Reading the project’s whitepaper is among the easiest ways to complete fundamental analysis in crypto. All legit assets will include a clear, detailed, and systematic whitepaper. Meanwhile, scam offerings might have whitepapers with typographical errors and be challenging to read. Also, you can consider things like the team building the crypto project. You can ask these questions whenever you plan to invest in any digital currency:
- Does the project have a whitepaper? Go through it thoroughly.
- Is there a loyal community behind it?
- How about tokenomics? Check things like massive initial sales.
- Who launched the project?
- How will the project be of help to the community?
Using Market Trend to Dip Buy
The crypto industry has boomed over the past years, attracting new users and investors. Many countries have seen the potential of this sector. For instance, El Salvador became the first nation to recognize cryptocurrencies as legal tender. Nonetheless, while the digital token market flourishes, not all assets as growing. Bitcoin, the largest crypto by market cap, seems to determine broad trends in this space. Bitcoin usually starts the upside and downward movements in the crypto market. Altcoins hardly stabilize amid BTC dips. Most alternative tokens crash harder during bear markets compared to Bitcoin. Therefore, determining market trends can mean analyzing BTC’s potential direction. You can utilize different technical indicators, including the Moving Average Convergence Divergence (MACD), the Relative Strength Index (RSI), and the Exponential Moving Average (EMA).
