BITCOIN
Buy The Bitcoin Dip — When and How
In bull markets long to buy and ride the trend higher.
I think we’re all on the same page by now. It’s a bull market in Bitcoin. What do we do in a bull market? We buy the dips, breakouts, and hodl. I have mentioned on several occasions that I’m not good at trading bull markets. I’m way too risk-averse and can’t make myself ape in ape season. This exercise is, therefore, as much for me as it is for you.
There will be times when there will be no dips in this bull trend. In the end, though, nothing goes up forever, and dips do come periodically. “Buy the dip in a bull market” is a meme or a mantra for good reason. It’s meant to remind us not to get ahead of a strong trend and to bet against it.
The simple fact is that the odds favor the bulls in a bull market, and even if you buy too early, the trend will often save you from this mistake. Trying to short a strong and persistent bull trend is much more risky, and the odds of failure are overwhelming. You can still short, but you must be meticulous with your entries and risk management. You need to run for the hills if you see any signs of strength.
When I started trading, I learned the QFL trading strategy after the trader who taught it (Quick Finger Luke). During the bull market in 2017, I milked the market using this technique. I was in love! Then the bear market came, and let’s say the divorce was costly. Still, I will mention the basics to remind myself and give it some context.
QFL — layered buying of the panic in the market
There are five essential cornerstones of this strategy:
- Identify strong “bases” in the charts (V-shaped support levels).
- Measure the average dip below the base on your particular chart.
- Buy the panic dump; never slow grind down! (large quick red candles) Layer down buy orders, increasing them as the price moves down.
- Sell your position as the price returns to test the base again (support turned resistance).
- If you missed the move and the price reversed back down, perhaps not touching your base, get the hell out!
This strategy has three big problems:
- Such significant dips don’t happen often, and it’s hard to estimate how low the dip will go. There is a lot of waiting on the sidelines involved.
- Managing risk is almost impossible. You can only be conservative with position sizing. The risk-to-reward ratio sucks, but the win rate is excellent in a bull market unless something is fundamentally wrong with your instrument (low caps and news-driven events are dangerous). No leverage allowed! ( I speak from experience here)
- When things go wrong, they go horribly wrong. (same)
Here are three random examples on the Bitcoin chart.
You will have noticed two more issues with this strategy:
- We leave a lot of money on the table in a bull market as we always sell too soon.
- Profits in % aren’t all that great, between 10 and 30% at best.
Let’s move on then. Keep this strategy in mind on those panicky days when everyone is losing their minds. There is opportunity when there is red in the markets.
Warning:
- Never expose large sizes to this strategy, and make sure you can live without the money exposed, at least for a long while, as you can’t manage risk otherwise. Spot only, no leverage!
- Don’t wait for the perfect retest. They rarely come, especially when there are any sort of “reasons” for the FUD in the market.
- At the first sign of trouble, get out!
Moving averages EMA dip buying
I’m not a big fan of relying on any indicator for my entries, but EMAs can indicate the market trend if nothing else.
- When the price is above the 200 daily EMA, it’s a bull market.
- When the price loses 50 daily EMA and then reclaims it, it is often an excellent entry for another leg higher during the bull trend.
None of this is an exact science; sometimes, the price will get nowhere near the moving averages, and at other times, it will dip much lower.
Place those EMAs on your charts and check the history for clues and orientation. Remember, the more you stare at the charts, the more patterns will emerge.
Buying the dip according to the percentage of the drops in price
This is much more my jam. If you know your trading instrument, which, for me, is Bitcoin, you will also learn how to predict healthy dips and their magnitude. Again, you can’t predict the future; this is just a tool for approximating where to take some risk!
On altcoins, for example, the bigger ones may be more predictable, while the smaller ones are reduced to straight guessing. Still, if you would like to trade an altcoin, check out its history and see how it’s behaved. No history? Tough luck.
Generally speaking, in a bull market (never bear!), buying around 20–30% of a dip from the previous top is a good entry. In fact, you can consider yourself lucky to get an entry such as that. Set your order between 20 and 30% from top, and stop worrying. Markets change, though, so you need to be flexible and adapt to new information!
Again, no leverage, and don’t overdo it with size. If you choose to play with a larger size, you must manage risk! In fact, always manage risk somehow, either with mental or hard stops, hedging, or appropriate position sizing.
Buying the dip when previous resistance is tested as support
Depending on how you draw your support and resistance lines and your time frames, you can predict that those areas will be full of people interested in buying. A lot of traders like Technical Analyses, which is why it often works. We all look at the same thing and want to do business at the same level.
You can also see clusters of action on your chart, where a lot of trading has been done. It stands to reason that, should the price get down there, there might be a reaction in that vicinity.
Entering on round numbers
I know this one sounds silly, but we’re all attached to certain numbers, especially the round ones. “30k is a magnet, 3k is bottom, 60k is top”, and so on. Many people were saying to themselves, if we hit 20,000 USD per Bitcoin, I’m going all-in. Yours truly included. This time, it could be 30,000 USD, for example.
Zoom in and look at the price action
My favorite entry point is after support has been lost and then later reclaimed with force (volume and large candle). It’s what I love trading on small and large time frames. You get a well-defined exit (below the drop), and since the market has shown strength in reclaiming support and the previous range or trend, the odds aren’t bad either.
Where are we now — what dip to buy?
Well, if we were to judge by the previous few dips of this bull trend, targeting a twenty percent dip seems reasonable. It also coincides with EMA’s and support levels.
- Is this the top before the dip? I have no idea.
- Is it possible that we don’t get any dip until 65k? Sure.
- Should I buy the 30–33k range if I get the chance? I will.
- Should I wait for 12k? Ha-ha, you’re funny!
Conclusion
There are infinite ways in which you can observe the market. Focus on one or two, and get proficient at them. When looking for the bottom, wait for strength in the chart or at least a confluence of a few indications that this could be the bottom for this dip.
I must emphasize that this is only true in bull markets.
Why? Because in bear markets, buying the dip is going against the trend, and in ranging markets, the range defines the dip, apart from a possible wick below the support level.
Good luck with getting and catching the next dip!
Always manage risk and remember that you can only ever estimate what the price will do; you will never know for certain!
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