Buy low, sell high is the golden rule in stock trading. However, we can’t always (if ever) time the tops and bottoms of the crypto or stock market correctly. Luckily, there are automated trading bots that can help us with strategies on how to buy the dip.
In this article, we will go over how to use the 3Commas crypto trading bot to automate trades and improve your chances of buying the dip.
This article uses crypto and the 3Commas trading bot as an example of how to buy the dip. However, the general strategies can be used with other trading bots in stocks or crypto.
What does buy the dip mean?
Buying the dip refers to purchasing a stock, cryptocurrency or other investment when it temporarily falls. The idea is that the price decline is temporary and your investment will rise again.
The dip refers to the dip in a stocks price chart. A dip, rather than a long term crash is usually defined as short lived. So the idea is to buy the underlying asset right at the bottom when it is done falling, but before it swings back up to normal or better prices.
What is 3Commas?
3Commas is a 3rd party crypto trading bot software. It connects with over 18 of the biggest cryptocurrency exchanges in the world.
3Commas trading bots can make automatic trades based on various parameters set by the user. The user can set these parameters manually or use AI or social trading assistance. 3Commas bots connect to your crypto exchange via an API and operate 24/7. If you want to learn more about 3Commas, read our full 3Commas Crypto review.
There are a number of bots and strategies within the 3Commas platform. In this article, we’re going to focus on the 3 main strategies someone can use to automate buying the dip in a particular cryptocurrency.
Buy and Hold – Trailing Buy
Within the “smart order terminal”, 3commas users can buy the dip using the “trailing buy” functionality. A trailing buy order can be thought of as an automated trading order with 2 activation points and one key parameter.
- Trigger point 1 = trigger price
- Key metric = trailing %
- Activation point 2 = Order Execution
The user sets a trigger price below the current market price. When the underlying asset begins to dip, the trailing % is activated. The trailing % is a key metric that monitors the all time low since the trigger price activation point. Once the asset rises by the trailing % over the lowest point since activation, the order executes.
When first placing the order, the user sets the trailing % metric. It basically means – buy the underlying asset once it begins to rise by the (user set) percentage.
That way, you catch the asset going down, can ride the down swing, and you don’t buy until it goes up a certain amount over the previous low. That “certain amount” is your trailing %. A key metric that triggers a buy.
The “trailing buy order” with 3Commas allows crypto traders to catch the falling price with the first trigger price, and then not execute a buy order until a certain % increase signals an end to the dip.
Buy The Dip Day Trading Strategy
One of the best parts about automated trading is that it can day trade for you 24/7. *Day and night trade ;).
Frequent buys and sells execute through something called a grid bot. A grid bot takes a price range (say $100 – 200) and divides it into a bunch of smaller buy/sell grid increments.
You enter a grid bot at a certain price point. If the price falls, the bot buys more and automatically places sell orders at set increments above the previous buy.
Having the bot continuously buy when the price is down and sell when the price rises makes your average entry cost for a specific investment lower and allows you to lock in some upside profits.
So while this automated trading strategy doesn’t buy the dip all at once, it will benefit you with a lower entry price over time if the market if falling.
Further reading: 5 Ways to Make Passive Income With Kucoin Exchange
Dollar Cost Averaging
Even with the help of automated trading, buying the dip is tough. That is why many traders believe that it is more about “time in the market than timing the market.”
For that reason, many people use 3Commas or other crypto trading bot options on exchanges to Dollar Cost Average (DCA) into a position.
With dollar cost averaging you simply break your buys into smaller purchases on a schedule. Let’s say you have $10,000 dollars you want to invest in ETH.
Rather than go all in with your $10K at a price point you think is best, you can set up a DCA bot to buy $1000 of ETH at 1PM EST for the next 10 mondays.
The idea here is that your overall entry point will be roughly the average price of ETH over that time period. This could help you buy the dip if the price falls over that 10 week period. If the price rises, you would have done better going all in with the $10k.
Buy The Dip – Conclusion
It is hard to time the market. Human emotions can certainly get the best of all of us. Using an automated trading bot system like 3Commas, you can more easily plan on how to buy the dip. Not only does it take a lot of human emotion out of the process, trading bots can also monitor the market 24/7 as you sleep. Buying in at just the right time.
I hope this article was helpful and gave you some insight into how to buy the dip. You can create a free account with 3Commas here, or try out the Kucoin exchange (10% trading fee discount) which has some free built-in automated trading bots.