- Buying the bottom is a holy grail for some traders in a bear market, but it really isn’t necessary
- A bottom is only possible to spot in retrospect
- Your aim should be to buy at a level that seems reasonable to you, or when an uptrend is confirmed
Buying the bottom of a bear market is undoubtedly the best way to maximise profits, but it is something only the extremely talented or extremely lucky achieve. Most people shouldn’t be aiming to time their buys at the very bottom of a market, especially in crypto where the gains are huge anyway. Dollar-cost averaging in during a bear market is the best way to play it, or alternatively wait until absolute confirmation that the bear market is over.
Luck or Judgement?
There is a reason why you don’t see many people waxing lyrical about how they bought the absolute bottom, even on crypto Twitter. This is because it is almost entirely down to luck. Let’s look at the late 2018 capitulation for example:
Having trundled along at around $6,000 for weeks on end, there’s no way someone thought “I think this will drop to $3,100 in December, so I’ll put some bids there. Of course, someone managed to buy the absolute bottom when it wicked down there, but that would have been a handful of very lucky or very skillful traders.
They didn’t pick the spot after careful charting and tracing out Fibonacci retracements – they hit ‘buy’ and got lucky. Thousands of others, perhaps even hundreds of thousands, didn’t buy the bottom, but a select band did, almost all by absolute chance.
Others who bought earlier may have looked at that wick with envy, but this is counterproductive; the odds of you being the lowest buyer in any trade are, as we have seen, thousands and perhaps hundreds of thousands to one. It stands to reason therefore that you shouldn’t be aiming for this needle in a haystack at the risk of losing more on the other side of the trade.
Dollar-cost Average or Wait for a Reversal
What you should be aiming for in any trade, especially with a potentially long running bear market, is to buy somewhere near the bottom, but going all in at what you think is the ultimate basement price should not be your goal. This will almost certainly lead you to buying before the market has bottomed out or worrying obsessively about what the market is doing after you buy.
If you really want to try and buy the bottom then you should ladder your bids down to whatever level you think it might bottom out at. This means that you can be sure to make the most of any unexpected wicks and a long, drawn out bear market, without obsessing over going all in in one go. This is called ‘dollar-cost averaging’, and can be very effective in a bear market.
The other thing to do is wait for absolute confirmation that the market has turned from bear to bull, then putting your chips on the table. This means that you won’t catch the bottom, but you have fewer concerns about price dropping back down again once you are in the market.
Whichever of these you adopt, don’t be the ‘bottom buyer’ who gambles and regrets going all in and as he watches the market drop 50% again, as in 2018. Bear markets require a plan and patience.