The Bitcoin Dip cult
When it comes to Bitcoin, many will tell you to just hold it forever.
It will always go up and you must be stupid if you are selling, it will never go lower!
Every day on social media I can see the comments about buying the dip, buy low sell high. It is turning into a cult again because there are so many new investors that don’t know any better.
These are just a few examples, but believe me, it is all over the place!
How Long can you afford to buy the dip?
Buying the dip Or DCA (Dollard Cost Averaging) could be a good idea if you have unlimited funds or if you started with only a tiny fraction of your equity.
Let’s say you buy every 10% down. So every time Bitcoin goes down 10% you double what is already invested in order to bring your average cost closer to the current price.
Your initial investment in bitcoin is 100$. Bitcoin may go down 80+% in a bear market and that does happen:
So here we go:
- Start = 100$
- -10% = 100$ Total = 200$
- -20% = 200$ Total = 400$
- -30% = 400$ Total = 800$
- -40% = 800$ Total = 1600$
- -50% = 1600$ Total = 3200$
- -60% = 3200$ Total = 6400$
- -70% = 6400$ Total = 12,800$
- -80% = 12,800$ Total = 25,600$
Now, if you had 25K available to buy Bitcoin in the first place, I doubt that you only bought 100$ worth, but if you did, congrats! DCA might be made for you. If not though, maybe you should change your strategy…
Now let’s say that you don’t buy the dip, you only want to hold until Bitcoin comes back to its all-time high.
Well, as you saw on the previous image (2014 bear market) and as you can see in this image of the 2018 bear market:
I hope you are prepared to wait over 3 years for that to happen!
You are probably in denial reading this right now (if you are in the Bitcoin Cult), it’s ok. I have a solution for you, just stay with me and continue reading 😉
Better ROI than holding Bitcoin
Now, what if I tell you that there is an easy way to make a lot more money, reduce your drawdowns by 50% and reduce your drawdown length from years to months? Interested? Awesome!
It is actually so easy that I’m pretty sure even an 8 y.o kid could do it and make money!
Ever heard of Trend Following?
Trend Following is a type of trading where the trader doesn’t try to predict the future price of Bitcoin, but instead, he follows the price.
So when the price goes up, the trader will buy or go LONG BTC and if the price is going down, the trader will sell or go SHORT BTC.
Now, how do we know if the price is going up or down?
This is a very basic strategy, so to keep it simple and make it usable for an 8 y.o kid, we will use the Moving average in order to determine if the price of Bitcoin is going up or down.
What is a Moving Average?
A moving average is an indicator that shows you the average price over the last X candles. So a MA (Moving Average) 14 (MA14) will show you the average price of Bitcoin during the last 14 candles.
Here’s what it looks like on a chart:
So it doesn’t tell us much here, but we can already see that it is acting as a support and resistance on the chart.
But this is not our strategy yet. Let’s see what happens when we add another MA, but this time, we will make it react faster, so instead of an MA14, we will add an MA10.
Ok, so the orange line is the new MA10 and the blue line is the MA14. When the Orange line crossover the Blue line, it means that the price of BTC is going up. When the Orange line cross below the Blue line, it means that the price is going down.
When the price is going up, we want to buy Bitcoin (or go long) and vice versa. Let’s see how that would trade:
We’ve got a couple of winning trades there, also a couple of losers at the beginning and in the middle of the chart. But the important thing to see here is the size of the winning trades vs the losing ones.
Also, if you shorted BTC for the second trade, you would have actually made money when BTC is going down instead of holding it for 19 days before it comes back to its all-time high.
Another point is, by making money on the way down, you will have more funds to reinvest once it starts going up again. The compounding effect of being in and out grabbing profit will do a huge difference on the balance sheet if you stick to the strategy for a year or two.
Below is a backtest of that strategy. The white line is what you would have made if you bought BTC 3 years ago, the blue zone is the profit that the strategy made during the same time frame, and the red zone is the drawdown that the strategy had.
Not bad right!?
So our strategy had a maximum drawdown of about 30% while buy and hold can have a drawdown of over 80%. You can also see that you won’t be stuck holding for 3 years + before you create a new all-time high in your equity.
This is really giving us better results and reduce the stress of simply looking at the market going up and down without being able to make a decision.
How can an 8 y.o use that strategy?
So I told you that even an 8 y.o kid could use it to make money right.. Let’s see if you can.
- Can you use Binance or any other crypto exchange?
- Can you enter and exit a trade at the market? (Buy and sell bitcoin)
- Can you read an email?
- Can you follow a couple of steps explained in detail to you?
If you answered yes to all of that, congrats! You are smart enough to use that strategy!
I have built that strategy with new traders in mind. I wanted something very simple that gives good results and introduces new traders to the Trend Following mentality. We don’t know where the price is going! We don’t need Youtube super Shiller to tell us what to do! We only need to know how the price is trending! Is it up? Or is it down?
For that, I am giving away the strategy and every step you need to do to get started!
Plus, the strategy will send you an email every time you need to buy or sell Bitcoin! You don’t even need to look at the chart 24/7!
Check out my step-by-step guide on how to beat buy and hold trading Bitcoin and within the next 30 minutes max, you should be all set up and ready to start winning instead of holding bags!
Thanks for reading!
Thanks for reading this and I really hope that it will help you! You can always contact me if you need any help or have any questions about the strategy.