Traders can approach the cryptocurrency market with many different strategies. One of the more common ones is „buying the dips“. This refers to the effort of buying a cryptocurrency for a low price rather than buying it when it’s high. While most traders are afraid to practice this, it is generally safer to trade the dips than just buying a coin with everyone else, when it’s trending. To master this technique, firstly we need to establish when it can be said that it is truly safe to “buy the dips”.
How to determine the dip level
The most complicated as well as important key factor in this strategy is determining the dip level. As there are many approaches to go around the most suitable time to buy the dips. Some people are of the idea to go all-in when they see a price of a certain cryptocurrency falling down, without realizing how much it can actually drop. I am not of this opinion and I think it is better to wait a while until the price settles or even moves again in the upward direction. To determine the dip level we have to observe historic prices and establish support levels. To do that you can use price charts available at about CoinDesk.com. Feel free to study the image below to see what buying dips can look like.
Big and low dips
Cryptocurrency traders can focus either on buying big or low dips. The former usually develops once or twice per month, or sometimes even after a longer time period. The ladder can occur several times during the day. It is a trader’s decision to make which ones he wants to trade. The big dips are considered to be more accurate and therefore safer. But as was already mentioned, we have to wait for them for quite some time. That being said, the big dips are more suitable for long-term traders and the low dips for day traders. Depending on the type of dips you want to buy, you should choose your cryptocurrency broker accordingly. To see one of the most reputable cryptocurrency brokers on the market, the table below can be used. Traders that desire to trade the big dips will probably achieve the best results with companies that do not charge an overnight fee. Traders who on the other hand want to trade low dips should rather focus on the lowest spreads possible.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Between 74-89% of retail investor accounts lose money when trading CFDs.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.
All trading involves risk. Only risk capital you're prepared to lose.
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Set buy order
One of the most convenient ways to buy the dips is by setting a buy order. This function will buy you a cryptocurrency when it reaches your predetermined price level. Most companies, unfortunately, do not include this tool in their offer. From the regulated crypto brokers we tested and compared, we know that eToro and IQ Option both have this feature. Other companies often have, however, a price alert function that notifies you via an SMS or an email when an asset price reaches a certain price. That said, it is still just a notification, the trade itself has to be executed by you.
Stop-Loss and Take-profit
Both well-known tools among forex traders should need no introduction to even cryptocurrency investors. But when something is really important, we follow the old saying:
Repetition is the mother of all learning.
When traders buy a cryptocurrency with a CFD broker they can set up a stop-loss order along with a take profit order. These features automatically close a trade when it reaches a predetermined price level. The stop-loss covers traders from the loss of a significant portion of their capital from which they might not recover when the dip keeps on dipping. A very similar task has also the take profit tool which closes a trade when you consider the profit satisfactory and do not want to risk that the price of a cryptocurrency will soon dip again.
The dip strategy – Overview
While the dip strategy doesn’t require traders to have advanced knowledge of technical or fundamental analysis, it can still bring impressive results. As the biggest obstacle that can be seen is the fear of buying a cryptocurrency when everyone else is getting rid of it. But once this unnatural way of thinking becomes your routine the dip strategy can be quite effective.
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