Should you buy the dip?
Bitcoin price crashed from roughly $60,000 to $42,300, a 30% drop from May 10 to May 18. I was watching the whole thing unfold as I kept my eyes on the charts.
I was ecstatic!
Rest assured, this was not me being sadistic after a market crash, I was just happy to buy the dip, especially after the massive bull run that multiplied investments overnight.
I did what any sane person would do, I bought the dip at $42,300.
Lo and behold, the crash continued.
Bitcoin price dropped another 30% to hit $29,900. To say the least, my portfolio was red, with a massive drawdown. I broke even on some and even profited on a couple of others, but mostly, I’m still underwater.
As Bitcoin price attempts to breach the $42,000 resistance level, I see a lot of crypto-gurus, traders, and YouTubers post on how you should buy the dip.
That is what prompted me to this write-up.
Here’s a TL;DR version
Don’t.
Why? Because you don’t know if Bitcoin price is done dropping and if it is going to head lower. If it continues the bull run, you can claim clout on Twitter by posting your screenshots. If not, you can bleat and regret it.
Don’t get me wrong, even I don’t know if BTC is done crashing. We are in the same boat.
A comprehensive take
Bitcoin price has been ranging since the drop, even the May 23 crash fit into this consolidation phase. The rapid surge from $31,000 to $41,330 over the past week has made many retail investors buy the top of the range.
This 33% surge with nearly two 10% retracements was enough to flip the Fear and Greed Index from 13 (fearful) to 38 (almost neutral). Such a dramatic shift for a minor upswing, suggests investors are FOMO-ing.
Here’s an excerpt from a recent article,
It is clear, that BTC is leaning bearish, but will experience a minor impulsive price swing to $42,267 after a dip into the buy zone, ranging from $32,565 to $33,837.
What happens at $42,267, which is the peak of the right shoulder and the 200-day MA will be critical.
It will be a test of strength between the bulls and bears or the market sentiment of the investors and if they are scared and withholding or ready to jump on board.
If there is one thing that you, the reader, would take away from this post is:
a 27% upswing to $42,267 from $33,186.
While the rally mentioned in that article has already manifested, I would like to direct users’ attention to something more crucial, which is the 200-day Moving Average (MA) at $42,820.
Although Bitcoin price has not tested the 200-DMA yet, anything could happen here.
- BTC price could tag $42,000, head lower and complete the right shoulder of the head-and-shoulder (HNS) pattern, which projects a 53% downswing to $13,876.
- Bitcoin price might not retest $42,000 but continue head lower, which is the current scenario. This move would still project a 53% crash based on the HNS setup.
- Or BTC might sweep the May 19 lows at $29,990, which might lure many traders to short, thinking the HNS technical formation is in play, but only to reverse the rally and successfully breach the $42,000 and the 200-DMA At $42,820.
Any of the above-mentioned scenarios could occur, or Bitcoin price could take a completely different path, which is the point of this article.
Not, I, the YouTubers, or crypto-gurus on Twitter have the faintest idea on what will happen. So, investing blindly to be left holding your obscure altcoin bag for years would not be in anybody’s best interest.
So do not go head-in and all-in without a proper plan.
So, what should you do?
I’ve learned this lesson the hard way and I would like to think I am on the path to becoming “risk-averse.”
So, here’s what I would do.
- Less Risk: Not invest. Most altcoins look terrible, extremely correlated to BTC. I would rather lose out of profit and than lose my capital.
- Calculated Risk: If I were to invest, I would wait for confirmation, which is the breach and retest of the 200-DMA at $42,820 and the 50-DMA at $43,686 on the daily chart.
- This would allow me to invest in altcoins but have a tight stop-loss set, which varies based on one’s risk profile.
- My risk appetite ranges from 0.5% to 1%. I would be inclined to increase my positions after we get confirmation.
3. Most Risk: Invest all, and just sit it out. Of course, this is only for “degens,” which I am NOT, with a strong stomach.
Fin.
Disclaimer: This is NOT financial/investment advice.
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