Don't Buy the Dip, Buy the Correction
I wrote before about the stupid things Crypto traders say and why you should ignore them. One of these things which always comes up is 'Buy the Dip".
Nothing moves up in a straight line and therefore with a growing asset, buy the dip is a term used when a price drops to advise investors to buy more because, you know, it will keep going up forever.
I used the chart below for Ripple to demonstrate why this is bullshit. When Ripple went on its mega run earlier in the year Reddit and Twitter went crazy, "Ripple is going to replace Swift," "Ripple is going to change the banking industry," "Ripple is going to the moon," blah blah blah.
Like any coin which flies up too quick, guess what? It dropped. Guess what? All those amateur experts on Reddit were posting "Buy the Dip," here is one example:
God Praise the Dip
"For those freaking out about the dip don't worry, xrp is going to crash it's just its weakly trend. Buy yourself some more "xrp and reap your rewards on Tuesday.
Side note: The reason I don't fear putting 10k in ripple when it's as low as it currently is because I know and believe that xrp will bounce back up."
The above was posted on July 8th around the Holy Crap moment and just before the What The Actual Fuck time. Now I am not saying Ripple will never go back up, but buy the dip implies that the dip is temporary, it could be, but it isn't certain as there are so many different factors at play. I counted 20 significant dips before it hit bottom. That is 20 times you can buy the dip and create 20 new losing positions.
And what about this fucking genius:
Now is a good opportunity to buy, for those unsure
If anything the last week has shown us, is that it'll dip sure, but it goes right back up. I firmly believe this .37ish is a low point, and we'll be back up in the .40s in no time, and then toward .50+
And then read the comments:
- "Just doubled down and bought more at .34. Hoping to see .50 by the end of June'"
- "Buy buy buy"
- "Dip and Buy"
The post was made on May 18th, now let's plot this on the chart.
If you want to trade on stock, forex or CFD platforms, there are checks in place to ensure you know what you are doing and you understand that risks when trading. With gambling websites, they have controls to ensure when you are losing money fast that you can't bet anymore. Crypto doesn't have this; new investors can enter the market, sold on the dream of getting rich and invest into things they don't understand.
There is a blind belief that each Crypto asset on a bull run will just go up and up because other assets have. Leading currencies such as Bitcoin, Dash, Monero, and Litecoin keep setting new all time highs, but this won't happen forever. Bitcoin kicked off a two-year bear run in 2013 and Litecoin's was even longer. All coins will at some point experience dips, corrections, and a damn long extended bear run.
Markets do this. It may be in a week, a month, a year or much longer. Crypto doesn't like to move sideways; it likes to go like a rollercoaster, flying up and down with the occasional breather.
Do not blindly buy the dip. Buy the correction. And this is quite easy to spot, look at the new chart below for Ripple, you can draw a simple line across the spikes during the downtrend and see on August 21st where it broke. Here new prices were tested and then Ripple settled into a new price range, the good old boring zone.
If you believe in Ripple, then this is where to buy, in the correction, in the boring zone, where there are no more sellers, and it is ready for another price wave. When will that happen? Who knows, avoiding a market doesn't crash, history tells us it will. You just have to be patient and either wait for news or some whale buying action.
A Market Correction is the Biggest Buy
Taking money off the table is part of my strategy, and I like doing it for a few reasons:
- It feels good to know you have made some tangible profits
- You can go and treat yourself to something nice
- Strategically I am then also ready for a market correction
I do my best not to think 'what if' when I take money off the table, and things move further up. I talked before about when I sold off 2/3 of my NEO before it hit the top and missed out on a chunk of profit. It doesn't matter; it is a trade, it was profitable, all is good. There is no point having your portfolio track what could have been because each trade is measured on its own merits and human psychology will naturally allow for selective memory.
When we had the big correction of June/July, through greed, I bought the dip with Dash. I put all of my 'money off the table' back in; then the market dropped more. I paid around 20% higher for Dash than I should of. It proved a profitable trade in the long run, but I could have traded it so much better.
When the market fully corrected, I didn't have any cash left off the table to take advantage of some of the spectacular altcoin moves. When the market had recovered my portfolio was down on where it was when the correction started. The market outperformed me because of deviating from strategy and greed.
I am not going to make this mistake again. A correction is coming, and I am going to be ready. I wrote yesterday about why I think we are in a bubble and pulled together a little video. Loads of people are Tweeting that it isn't a bubble, below is one example that keeps getting bandied around. As I Tweeted back "A bubble isn't defined by market cap, it's defined by behaviour, psychology, and percentages."
A market can't sustain accelerated price rises. Eventually, you run out of buyers and then human fear kicks in and the market traces back.
Let's do the math. Over the last 12 months, Crypto has jumped from $12.1bn to $164.4bn; this is a growth of 1,258.7%. If Crypto is to grow at the same rate over the next year then our market cap will be $2.1tr, is this possible? Sure, the market cap of gold is around $7tr alone.
Do we expect similar growth? $26tn, is it possible, sure? It is possible for me to beat Usain Bolt over 100m but it's never going fucking happen, especially if some of these Cryptocurrencies don't start demonstrating utility.
We are in a bull run, a lucky year, but the growth will end at some point, and at that point, it is unlikely that it will move sideways, again, especially without utility. As we are all in this to make money, guess what people will start doing? They will start selling to realise their fiat profits and if this triggers a correction, then you watch how fast this unfolds.
Nobody knows what the fuck will happen, not me, not you, not anyone, but markets do not move up in a straight line and Crypto is the most volatile market there is.
When the correction comes, smart strategic investors will make money; greedy amateur investors will get burned hard.
Any questions then, please give me a shout.