Crypto Rebounds: Might be Dead Cat Bounce, Might be Recovery; Either way, Buy the Dips

Crypto Goes Up and Down. Consider Buying the Dips.

Bitcoin rebounded above $8k after hitting a recent low of $6k. Most altcoins followed suit. This might be a dead cat bounce, or it might be a recovery. Either way, anyone who bought the dip profited.

And that is the point and lesson here.

If you see a gnarly crypto chart, where we seem to be in the middle of an unstoppable correction, it is a reason for caution. It is not a reason for giving up (assuming you want to invest in cryptocurrency in general). That part is your call. Do your own research. This is not investment advice. We provide informational and educational content only here. That is our standard crypto disclaimer.

The reality is, crypto tends to be volatile, and it tends to correct after reaching highs, especially if there is bad news.

We just had some significant all-time highs and a month or more worth of bad news. This resulted in a correction.

During a correction, it looks like things will never recover, and we can find ourselves waiting for lower lows to buy at that great low price (just like in a rally we have the opposite problem of waiting for higher highs and putting off selling).

In practice, we can find ourselves recovering rapidly when good news comes and loosing equally quickly during corrections after bad news. Thus, we can find ourselves missing opportunities if we put off buying until a mythic low point where during which we feel confident that in having bought the lowest price possible.

In this instance, good news came quickly after hitting a historic low and support level at $6k, and Bitcoin bounced back rather nicely.

Nice bounces like that after a rally are one of two things

  1. Finding a new bottom.
  2. A dead cat bounce.

If its a bottom, the days of $6k BTC could be over for good this time. If it is a dead cat, then everyone gets at least one more shot to buy the dip.

It is anyone’s guess if this rally will hold, or if we will see stagnation, or if prices will drop again and find the rally or mean at another future point.

We don’t have crystal balls or time machines. So instead we have to watch indicators and buy dips if we want to be in the game.

Watching Bitcoin drop from $9k to $6k and waiting to buy the dip at $5.5k is arguably cocky. It is the same sort of cocky that had people buying and holding at $19k who were waiting to sell at $20k. Selling it $19k is almost as good as $20k with $6k in the rearview, buying at $6k is almost as good as $5.5k with $20k in the rearview.

I’m not suggesting when to buy or what to buy; I’m just pointing out some basic logic.

Our human psychology works against us at every point. Thus we have to come armed with some basic logic to override our emotions.

No, the good times will not last forever, but neither will the bad times. We have to keep this in mind.

If you don’t have sufficient faith in crypto to leave some money on the table and remain in the game, then you should question why you are trading crypto at all. Where is the logic in passing over $6k because “crypto is dead” and then FOMO buying on the recovery because you regretted not buying when it was lower?

Ideally, you want to do the opposite if anything.

When you see a coin skyrocket, it isn’t a bad move to sell a little. When you see a coin nosedive, it can be a good move to buy the dip; the closer it gets to its price before it went up in the first place, the truer this is. If you buy the dip, you can sell on the bounce. For example, you could have bought at $6k and sold at $8k. You could also add to your average long position. For example, keep buying at $6k or lower, and then hold when it goes over $10k again until you find some great selling points.

How many more times do people want to bet on seeing Bitcoin prices below $7k? It could happen, but it could also never happen again in the history of crypto.

We don’t have crystal balls and time machines. So if we want to be in for the next rally, we have to buy the dip. Otherwise, we will be buying on the way back up. Buying on the way back up works for experienced traders. However, for the average Joe, it is hard to beat dollar cost averaging on the dip.

So what happens next with Bitcoin? Who knows? If you listen to people who think they know, and you bet 100% of your investable income on their assessment of the probabilities, this is how you get in trouble. The bears could be right; we could be heading down again. However, we could not be and it could be months on end of bears getting left behind or having to play catch up.

Since we don’t know, we should consider averaging into Bitcoin on the dip. If you want a dip, I don’t see how you can look at the lowest the price has been and months and think “I’ll pass this over without at least buying a little, because I know it’ll go lower.”

How do you know when to buy on the dip? You don’t really. You can watch indicators like RSI, and you can look at past support levels. You usually just cast ladders all the way down (if you want to be safe, increasing bids as prices fall). Learn about laddering.

The bottom line (assuming you want to be in crypto): Putting off buying until lower prices will work until it doesn’t. To avoid having to know the future, average into the dip. Then from there, either be conservative and sell the bounce, or take that risk, be an adventurer, and hold. Both moves are valid.

TIP: If you bought every dip from $19k to $6k and sold on every bounce, you made money as Bitcoin corrected. This is true across the board for most cryptos. If you bought the dip and held, you are holding some bags, but have lowered your average price on each dip. If you evenly distributed your funds, you will break even at about $11k (assuming your first buy was at $19k). That isn’t ideal, but it is way better than needing to get to $19k to break even. What happens if we go to $5k, $4k, $3k? If you buy and hold you’ll keep lowering your average price. If you sell the bounce, then you might make money or break even. Just stick with your strategy, and use small enough buy-ins that you aren’t exhausting your investable funds; if you are, consider either sitting tight or selling the bounce.

NOTE: On its way down Bitcoin went straight down without bouncing something like zero times. Every time it found a bottom, it recovered a bit. It didn’t always get back to the price it started at, but it did give people room to buy the dip and sell back to recoup losses or make a quick profit. Holders didn’t have a fun ride down, but even they worked to lower their average price as the correction continued.

TIP: If you want to limit losses, consider using a stop loss. You can set them after the price recovers above your buy price, or you can set them under your buy price. They can lose you a little money in the short term, but they can save you even more in the long term if the market turns against you quickly. If you think you bought the bottom, but aren’t sure, a stop loss can help.

Author: Thomas DeMichele

Thomas DeMichele has been working in the cryptocurrency information space since 2015 when was created. He has contributed to MakerDAO, Alpha Bot (the number one crypto bot on Discord),...

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