ReadySetCrypto Podcast

ReadySetCrypto Podcast #10: Just Buy The Dip?

August 19, 2018 ReadySetCrypto Season 1 Episode 10
ReadySetCrypto Podcast
ReadySetCrypto Podcast #10: Just Buy The Dip?
Chapters
ReadySetCrypto Podcast
ReadySetCrypto Podcast #10: Just Buy The Dip?
Aug 19, 2018 Season 1 Episode 10
ReadySetCrypto
Everyone talks about "buying the dip" as a universal strategy when it comes to crypto. But most investors are doing it wrong! In this short episode, learn when to use "buy the dip" to your advantage, and also when to stand aside from this well-known strategy.
Show Notes Transcript
Everyone talks about "buying the dip" as a universal strategy when it comes to crypto. But most investors are doing it wrong! In this short episode, learn when to use "buy the dip" to your advantage, and also when to stand aside from this well-known strategy.
Speaker 1:

Welcome to the Crypto podcast. Do you expect us to talk on it? You'll be shrieking. Meet your dog and views and opinions. Heard on the ready set crypto podcast are not necessarily the opinion of this company nor its management material on this program is for general information only and should not be taken as specific investment tax or legal advice.

Speaker 2:

Hello everyone. This is doc seeberson with episode 10 of the ready set crypto podcast. Today's topic is on everyone's minds as we move into month nine of this crypto bear market, but it's also something that raises questions regardless of the state of the market, whether it's a bowl, a bear, or a choppy sideways range bound market. Today's message is short, but hopefully impactful for a lot of investors new to this market. Here it is. The question for today, should you buy the dip right now? Besides the term huddle, no other phrase in crypto investing is more commonly dispensed as advice for any situation. Just buy the dip. In fact, a quick search of Youtube, bring several samples of this advice.

Speaker 3:

I bought it. I bought it to find a dip.

Speaker 2:

If you don't, then you are an idiot just by the on you will make money to think about that last one for a minute. Just buy the dip or you're an idiot. Just buy the dip and you'll make money too. How's that for pressure? That will nag at you as your finger hovers over the mouse button. Now, I don't know when you are listening to this podcast, it might be an August of 2018 when I recorded this or it might be at some point in the future as you stumble across this podcast episode, so let's just say that prices across the board, whether they are in the top 10 crypto coins or alt coins are pretty much a yearly lowe's right now. Based on that one piece of evidence alone, many investors are succumbing to the urge or advice to buy the dip as this is one big old dip right now and that might not necessarily be a good thing. Let me lay out a little bit of structure here and I think this might help you going forward. Point number one is that the whole concept of buy the dip is meant for bull markets only. Yep. Markets that are making higher highs and higher lows and the price chart is where you should be using this technique of buy the dip. The probability in a bull market that a dip in price will quickly rebounded and lead to higher highs is usually pretty good. Eventually the trend runs out and the dip that you buy starts moving lower and not higher. At this point, your market isn't a correction or maybe even a full bear market and that logically brings me to my second point. The term by the dip is really not meant for corrections and especially is not meant for bear markets. What goes low can go a lot lower as those, the the Bitcoin dip at 13,000 found out as a dropped from 19,000 in December of 2017. The trouble is that you really don't know where the bottom will show up and it's made worse by those cognitive biases that I brought up in the last episode, like The bandwagon effect, recency bias and confirmation bias. You end up seeing what you want to see, you want the price to bounce at that dip, you talk yourself into doing it, and yet you're massively disappointed when it doesn't bounce, and here's a term that you'll hear in regards to bear or corrective markets. Don't try to catch the falling knife if that expression doesn't create enough of a visual for you. Imagine trying to catch a sharp plummeting knife with only your fingers without getting sliced up. Not a very good probability is it? This is what usually happens to people that tried to buy depths in a falling market. They get sliced and diced, so one more time. Point number one is that expression by the dip is a technique meant to be used in ascending bull markets and the converse of that is point number two, which says not to use a dip buying strategy in a bear market because it says hard to pull off as catching a falling knife. Now at some point I usually have some investors who say, come on, man, lightened up. Can't we use the dips for something in this bear market? Well, it depends. If you're an investor with a long term time horizon, and I'm talking about something like five years plus here, then you can use the dips in a bear market to average down your holdings and lower your cost basis. Some call it dollar cost averaging. However, that usually implies that you're making contributions at regular intervals regardless of what's happening in the underlying market. I think it's okay to come up with a set of technical charts signals that allow you to enter a very small portion of a position on truly oversold dips in price, especially if they're showing positive divergence and the only reason that I would allow myself to buy depths in a falling market like this is because when most assets start to really, really rally, it can be very difficult to get on board with any decent edge due to how quickly the price moves from that short covering. Or you can make the whole process easier for yourself by only buying during ascending markets. The difficulty here is that it can be very difficult to discern the difference between just another random bear market rally and the real rally off of the bottom, which few are participating in due to the fact that the previous several rallies were fakes and lead once again to disappointment. It's tough to catch the bottom of a bear market really, really tough. So in summary by the dip is for bull markets only. Don't buy the dip and bear markets unless you're using very small contributions and you're using studies to qualify the dip is being extremely oversold and likely to bounce in the near future. I've been talking about these exact points in our daily market update video in the ready set crypto premium newsletter. If you don't understand charts and technical analysis, now is the time to get your act together before the next real rally. I hope this quick episode has helped. Thanks for listening and I'll see you in the next podcast.