Previously I have written about DCA strategy + buy the dip. The DCA part does the job of taking out the emotions, and the “buy the dip” is to utilize the time to make your cost basis even lower (DCA down). In a time like this, it’s the worst idea to sell low. If you want to sell and take profits, you would have been doing it way back in Nov or early Dec last year.

Now if you are not selling low, you’re halfway to success. You don’t want to do this:

Please don't do this!

But anyway, today I’d like to talk about HOW to buy the dip, because I have heard of it so many times here, but no one says how to do.

The two types of mistakes in a downturn

Panic buying and run out of fiat too early: Let’s say you have always wanted to buy more of something but can’t wait, so you go all in the first dip. As usual, the dip will dip lower. You realize you have run out of fiat and hate yourself for missing out lower dips.

The overly pessimistic: You listen to a bear on the daily and they said (like in July 2021) BTC is going to $16k or even $12k! You keep waiting in Aug, Sep and realize the market trend has reversed! BTC was going up again. You have missed the chance!

Ideally, you don't want to be either of these types. It's impossible to catch the exact bottom, but even getting 10% close to it as a "buy the dip" purchase would be great!

Look at the big picture

Market entry cost basis broken by band. Full credit to @ TheRealPlanC on Twitter.

As you can see, there are various strong holders with cost basis between $36,380 to $41,872. Failing that, a relatively weaker one of $35,008, then a series of between $32,262 to $33,635. If it goes sub $30,889 there is almost no bull defense until $26,770 – that’s why we frequently hear “for the bear, it will have to trigger all the stop losses all the way down to $27k”. Never say never, but BTC going down to $16k or $12k is quite remote, unless there is an extreme black swan event.

Contrary to the popular belief, it usually takes weeks or months to confirm trend reversal, not a couple of days. Why? Crypto is often regarded as “riskier” than other asset classes, thus in a downturn, it will usually be one of the first to be sold. Thus, on the way back to recovery, it will require tremendous volumes over some time to confirm the trend reversal.

The big picture includes the financial market outside of crypto. The most noticeable is S&P 500, NASDAQ and news about interest rate. And then we should not ignore the elephant in the room, such as Russia-Ukraine.

How low the dip will go? – market indicators

After we know that the market conditions would translate for (at least) several weeks in the “underwater” mode, it’s time to find the support bands. That would be one of the bases for setting price that trigger the dip buying orders.

Find the support bands: If you go to Tradingview and select the daily candle for BTCUSD pair, you will find some areas acting as support bands – kind of like a floor that prevents the price being dragged down further.

Tradingview - BTCUSD pair

If you’re not familiar though, several people can tell you the support bands. For example, Ben Cowen recently uploaded a video for the bear case. Sally Ho from Crypto Daily identifies the following downside objectives: $39,927 => $39,394 => $38,527 => $38,316 => $37,869 => $35,982 and $35,698 areas. Just now we are testing $39,927!

Relative Strength Index (RSI): Usually if RSI is less than 30, it’s a better time to buy. The lower it is, the larger amount I will buy accordingly.

The most recent time when RSI for BTC fell under 30 is 24 Jan 2022. That's a local low of $33,556. This is from Coindesk.

There is a website that tracks RSI instantly as well as many other market indicators in which you can track on Investing.com => indices => Bitcoin Real Time Technical.

Investing BTC indicators - you can see RSI is 34.061 now.

Whale watching: When you start seeing the whales have started buying, it is also something worth considering. One of my most recent watch is the third largest address. Of course, this is just relative though. Whales make mistakes too, so don't take it as 100% signal.

Bitinfocharts - the third largest whale. As you can see here, this whale last buy is 274 BTC @ $37,260 on 04 Feb 2022. It has stayed on the sideline in the last 2 weeks.

Action: Set reducing buy orders, don’t go all in the first dip

After having an idea about the scope of the dip, it’s time to put into action. The lower the price, the bigger the order. For example, if I use the support bands above.

Just an example. Again, this is up to your risk averse level. You may say, well my cost basis is $38k so I won’t start buying again until it hits $37,800. But this way you can make sure you still have fiat to buy if the dip goes lower. Never go all in the first dip.

And of course, this is not financial advice, but that’s my strategy, along side dynamic DCA. What is yours? I would like to hear please.

Edit: 1/ This is just an example of how I would approach things, it doesn't mean it will bottom out at $35.7k. No one knows for sure. It may or it may not. May be it goes down to $33.7k. When you buy the dip, you essentially place a chance here: if it doesn't go down further, you lock in some units at the best possible price in the short-term. If it goes down further, you still have fiat left to buy.

2/ TA is not useless. TA cannot predict long-term trends because there will be so many externalities in the horizon. But TA helps predict market in the short-term. For example, when BTC broke the $41.9k support band recently, we know things will get worse. Therefore, we can prepare fiat accordingly.

3/ DCA and "buy the dip" are not mutually exclusive. We can combine both strategies to figure out the best. In my opinion, DCA is a "risk-neutralizing tool", not necessarily a "return-maximizing tool". That's why we use a wide range of market indicators to further enhance our DCA. You don't want to DCA in at $68k when all the market indicators flashed red hot in Oct/Nov last year. You probably wanted to DCA out and buy back for almost 50% discount now.

4/ Another website which lists a number of handy indicators is Barchart. Just select the pair BTCUSD. This is known as "the cheat sheet"

Barchart .com - BTCUSD Cheat sheet