“Buying the Dips”

A basic investment strategy can be phrased as “buy the dips,” this doesn’t mean buy while an asset’s price is going down, it means buy after it settles.

In other words, “buying the dips” should be thought of as buying after a price settles after dropping (although prices don’t always settle for long; so it can also be read as “buy when the price starts recovering.”

The other part of this strategy is then to sell at peaks after the price settles again (or while it is going up after a good run or when it starts to come back down again).

This is to say, “buying the dips” generally refers to aiming to buy low, and then the other part of the strategy would be to “sell high.”

We can treat this as “buy the big dips” (as in, buy when the price has gone well below the average and then stabilized) or we can treat this as “buy the little dips” (as in, buy when the price comes down from wherever it last was then stabilize).

And, we can aim to sell right back, or we can dollar cost average and build a medium or long term position like this over time.

In words, there is more than one way to “buy the dips” (with crypto or any other asset).

The strategy isn’t fool proof, but it is a smart and simple investing strategy that doesn’t take much skill or techincal know-how to implement.

With all that said, let’s not make this more complicated than it is. The basic strategy is in the name, its a simple concept with a few variations. It isn’t always easy to pull off (as no one can see the future), but it does help increase your odds of either “getting the best price over time by dollar cost averaging” or “buying low and selling high.”

It is generally a better strategy than “buy when everyone is manic and the price is going up.” As one wants to avoid “buying at the top” and being “a bag holder (or in crypto, “hodl-er”).

The graphic above should explain everything you need to know. Here are some additional tips and tricks:

  • You’ll want to use an exchange like GDAX to do this. Buying any other way is an option for sure, but great deals can be hard to pull off without being able to trade quickly.
  • A good strategy is to wait until a price starts going back up to buy and then wait until it starts coming back down to sell. The only problem with this is that if you use market orders it can really eat into your gains due to fees. If you are buying BTC at $5k and selling at $5.1k you don’t have a ton of wiggle room in terms of fees. Learn how to avoid fees with limit orders.
  • A good strategy is to look at what the price has done over 1 hour, 24 hours, and 1 week and set limit orders just under highs and lows. For assets that are somewhat stagnant this can net you great buying and selling opportunities in the short term.
  • Set stops as needed. We always want to make the right moves, but no one is right all the time. If you need to, be ready to take a loss with a stop.

TIP: In case where the price of a coin (or other asset) is plunging slowly towards its doom, buying the dips can be hard if not impossible to pull off. In cases like this you more-so end up dollar cost averaging down the side of the mountain. Consider Ether’s chart for Oct 17, 2017 below. Yes, there were a few opportunities to buy and sell quickly, but if you didn’t pull that off, you went down with the ship. Still, buying the dips down the side of a mountain is a lot better than buying high and riding the price down to your doom. No investing strategy is perfect, but buying the dips is a smart and simple one with that in mind.

Buying the dips is all well and good… that is, until the whole day is one long set of dips down the side of one big dip. Image from Ethereum Price.