Hi traders, given the current state of this crazy market, I think it's about time we talk about strategies on how to trade a bitcoin dive.

Here's mine...

Why this is relevant.

• Bitcoin is trading at an unbelievably high price and current price action is unsustainable due to its parabolic nature. Also, the weekly RSI is showing signs of a reversal, you'll know the market turns bearish when the grey line crosses under the yellow line.

• Although the current market could still have another few weeks of bull in it, when when we hit a reversal we're likely to see BTC dump and altcoins lose a lot of their current $ value, so in preparation for this event here's a few tips to help you trade this type of extreme volatility.

Tip n.1 - Keep cash on reliable and liquid exchanges.

This tip should be obvious, you need to keep your cash on exchanges with good liquidity (to avoid slippage) and most importantly with a good trading engine so the whole thing doesn't go offline once the market switches to panic mode, I personally recommend BITTREX (if you're trading small sizes) and BITFINEX (for bigger sizes). Conversely I DO NOT recommend Kraken (a slow, laggy mess of an exchange), Poloniex (which has gained a reputation for locking people out of their accounts) or GDAX (which usually goes offline in periods of high volatility).

Pro-tip: Don't let your cash/USDT sit idle on an exchange, instead place multiple very low orders on multiple very liquid markets like ETC, ETH, Zcash etc so you'll be able to catch any eventual flash-crash; for example if an ETH whale decides to market-sell a huge order to cash out off their ICO ETH like what happened on GDAX over the summer.

Tip n.2 - Catch big dumps only.

Not all dips are created equal. When trading the BTC market, you should never attempt to buy anything less than a 30% drop. Ideally, a 50% drop would be a definitive buyer because when a bullish market suddenly dumps, it's likely bullish buyers will step in to buy for a dead cat bounce before the market reverses.

Anything less than 30% is not worth the effort and could actually lead to financial loss because it might fail to produce a bounce and keep dipping lower.

Tip n.3 - Sell on the bounce.

Now that you have caught the dip you need to use fib retracement levels to set your sell-target for a bounce play. Personally, I like to use the fib tools on Bitcoin Wisdom which I find very accurate and reliable (because most veteran traders also use it to set their targets).

Draw your fib from the top of the candle from which the price started to drop (blue circle) to the bottom of the wick where it bounced (blue circle) and sell for cash at the sweet spot... usually between the 50% and 78.6% retracement level (yellow circle).

Here's what it looks like on the chart, notice how the price respected the levels so well:

Tip n.4 - Scale into a dip buy.

Buying dips is a nerve racking experience for new traders because you might not be able to buy the exact bottom on the first try and the price might continue to dip lower before bouncing, exposing you to the risk of panicking out off your trade and selling at the bottom only to have the market bounce on you.

That's why you should never go all in on a dip-buy but instead incrementally scale into it. For example if the price drops from $17,000 to $10,000, buy this dip with 30% of your cash hedge and see what the market does from here, if it goes lower, you can either cut out of your initial dip buy at minimum loss and/or buy lower to cost average down your point of entry. Once the bounce is well established (usually after a double bottom), you can increase your position using more of your cash hedge.

Tip n.5 - Know your trendlines.

The bitcoin market absolutely loves bouncing off clear trend-lines. Again, here's a recent example:

So it's important you familiarize yourself with how to draw trendlines, lucky for you I wrote an article about this very topic which will tell you everything about using trendlines on Bitcoin Wisdom (which is free to use by the way).

That's it for today gents,

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