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. This means a lucrative opportunity for beginners looking to capitalize on the potential of crypto.
However, this also means huge risks, given the wild price changes. Thus, you will need various techniques to navigate the associated risks. Immersion buying is one of the approaches used by cryptocurrency investors. This content will analyze the “buy the dip” strategy and its advantages.
What is Dip buying?
Buying dip is a terminology you will come across whenever you actions and crypto. It is a strategy where participants buy assets at discounted prices to profit when the tokens rise. Like other asset classes, the crypto space has its seasons or cycles. The market could be trending up (bull market) or down (bear market).
So, buying down means buying assets when prices are falling and waiting for returns during bull markets. Expert market players set limits when implementing this method. For example, some will only invest when prices fall by 20%. This may differ from person to person (depending on the trader’s strategy).
What should be considered before buying a dip?
Fundamental analysis
Performing fundamental analysis of any crypto asset is crucial before investing. Unlike stocks, crypto projects lack facets of study such as balance sheets and earnings. Therefore, the procedure is different when it comes to cryptocurrency.
Reading the project’s whitepaper is one of the easiest ways to perform fundamental analysis in crypto. All legitimate assets will include a clear, detailed and systematic white paper. Meanwhile, fraudulent offers may have white papers with typographical errors and be difficult to read. Also, you can consider things like the team building the crypto project. You can ask these questions whenever you consider investing in any digital currency:
- Does the project have a white paper? Go through it thoroughly.
- Is there a loyal community behind it?
- What about tokenomics? Check things like massive initial sales.
- Who started the project?
- How will the project benefit the community?
Use the market trend to lower the buy
The crypto industry has exploded over the past few years, attracting new users and investors. Many countries have seen the potential of this sector. For example, El Salvador became the first country to recognize cryptocurrencies as legal tender. Nevertheless, while the digital token market is booming, not all assets are growing. Bitcoin, the largest crypto by market capitalization, seems to determine the big trends in this space. Bitcoin usually starts the up and down movements in the crypto market. Altcoins are barely stabilizing amid BTC declines. Most alternative tokens crash harder during bear markets than Bitcoin. Therefore, determining market trends may mean analyzing the potential direction of BTC. You can use different technical indicators including Moving Average Convergence Divergence (MACD), Relative Strength Index (RSI), and Exponential Moving Average (EMA).
