‘Buy the dips’ in the crypto world simply means the purchase of a crypto asset after its price has dropped.
The Long Explanation
In the cryptocurrency world, a dip refers to the drop in price of an asset. ‘Buying the dip’, thus refers to the act of purchasing an asset after its value has dropped.
This concept is often based on the belief that a dip is a short-term affair that presents a chance for investors to grab the asset at bargain prices before it regains its value. It, therefore, presents investors with an opportunity to make extra profits on a crypto asset.
Besides the potential for profit, dip-buying also helps investors who already have an asset to reduce the average cost of their position. As with every trading strategy, buying the dip doesn’t guarantee profits. Just because an asset is cheaper now doesn’t mean it presents good value for money.
Many investors, for instance, profited from buying the dip after the bearish crypto market run of 2018 which was then followed by a massive year-on-year bull run.
In 2021, though, many who bought the dip after the first wave of declining prices early in the year, soon saw their assets decline even further as the early bullish run came to an end and the bearish run remained through most of the year.
The dip presents a high-risk, high-reward opportunity. To successfully buy a dip, an investor must look at other factors around the asset to determine whether the dip is temporary, or is a signal of a shift in the market.
Buying the dip successfully requires a combination of solid technical and fundamental analysis. To do this, a crypto investor must be able to separate himself from the fear of missing out (FOMO) and understand the nature of the market they’re in.