Catching a falling knife
Buy low, Sell high. Easy right?
A coin going down can initially look like a great buying opportunity. After all, a coin you're interested in, now costs less for you to purchase. Recall however that the markets are a zero-sum game. People take money from other people and everyone is out to get your money. So lets consider why you should and shouldn't buy a coin that is going down in price, aka catching a falling knife.
The Dump after the Pump
A steep decline in cryptocurrency price following a large price increase over a very short period of time (think minutes to hours) is not easy nor very profitable to chase off, especially if there appears to be no good reason for the initial pump. What appears to be significant news, such as partnering with a group or established company (e.g. Microsoft, ApplePay) is indeed going to increase the coin's likelihood of success, but only in the long-term. In the short-term, these types of news make little difference and instead the pump caused by these news is likely to fade away as traders have short memories and the harvest from that partnership is likely to be months if not years away. Wait at least 5x the time period of the pump to secure much better prices, and allow traders' memories to fade before jumping in. However with very rapid inclines and declines, note that the time period between peaks is usually much longer - weeks, months, or years.
Examples:
Almost every coin under $100mill MC has experienced one of these
The Dip after the Rip
Rip-roaring confidence causes massive surges in a cryptocurrency over days-weeks. These usually induce an element of Fear of Missing Out (FOMO) due to the (relatively) slow but steady increase in coin value, usually culminating in the most rapid increase right before the dip. This requires further analysis as to the confidence of the people and what it is backed by. Elements such as the reputability of their partners, reputability of the developers and some innovative algorithm produced with this coin are not reliable foundational factors for sustained speculator confidence (although it may be a factor for sustained investor confidence).
Examples:
Iota (started at 6000 sats, pump to 40000 sats on Microsoft partnership rumours, now back at 25000)
ReddCoin (started at 10 sats, near All time low, pump to 180 sats on back of news of social media integration and new development)
High volume dumps
Not a good sign. Big volume dumping may be market manipulation but more than likely is an attempt by whales to get out whilst the going is good. Not all dips are recoverable and recognise what type of FUD (Fear, Uncertainty and Doubt) news are actually important. No news is not important. Rumours of currencies being banned are unimportant. News of currencies being banned is unimportant. Rumours of hacked centralised websites related to the currency are unimportant. However... news of banning of a critical aspect of the currency is important (e.g. TenX and Visa's removal of partnership + SEC regulation). News of clearly unethical behaviour is important (e.g. Tron and it's copy+pasted whitepaper). Revelations of overpromising of a feature is important (e.g. Verge and it's relatively benign security although deemed to be highly private).
Low volume dumps
Alternatively a good sign. The newest cryptocurrency players are the ones with minimal amounts invested, are more likely to be ready to sell at declining trends or no news, and often are bought up by larger players interested in either pumping the coin later or holding the coin.
ICO Prices on new coins
When buying a dip on a coin that has been released less than 3 months ago onto exchanges, first research the ICO price. If the coin is higher than 2.5x it's ICO price, you may want to continue waiting. If it is under or at 2.5x it's ICO price however, it is likely to be among the lowest price you will get for the coin.
Examples:
Electroneum (ICO price ~150sats, Lowest since trading, ~350sats, has never been as low since)
A coin going down can initially look like a great buying opportunity. After all, a coin you're interested in, now costs less for you to purchase. Recall however that the markets are a zero-sum game. People take money from other people and everyone is out to get your money. So lets consider why you should and shouldn't buy a coin that is going down in price, aka catching a falling knife.
The Dump after the Pump
A steep decline in cryptocurrency price following a large price increase over a very short period of time (think minutes to hours) is not easy nor very profitable to chase off, especially if there appears to be no good reason for the initial pump. What appears to be significant news, such as partnering with a group or established company (e.g. Microsoft, ApplePay) is indeed going to increase the coin's likelihood of success, but only in the long-term. In the short-term, these types of news make little difference and instead the pump caused by these news is likely to fade away as traders have short memories and the harvest from that partnership is likely to be months if not years away. Wait at least 5x the time period of the pump to secure much better prices, and allow traders' memories to fade before jumping in. However with very rapid inclines and declines, note that the time period between peaks is usually much longer - weeks, months, or years.
Examples:
Almost every coin under $100mill MC has experienced one of these
The Dip after the Rip
Rip-roaring confidence causes massive surges in a cryptocurrency over days-weeks. These usually induce an element of Fear of Missing Out (FOMO) due to the (relatively) slow but steady increase in coin value, usually culminating in the most rapid increase right before the dip. This requires further analysis as to the confidence of the people and what it is backed by. Elements such as the reputability of their partners, reputability of the developers and some innovative algorithm produced with this coin are not reliable foundational factors for sustained speculator confidence (although it may be a factor for sustained investor confidence).
Examples:
Iota (started at 6000 sats, pump to 40000 sats on Microsoft partnership rumours, now back at 25000)
ReddCoin (started at 10 sats, near All time low, pump to 180 sats on back of news of social media integration and new development)
High volume dumps
Not a good sign. Big volume dumping may be market manipulation but more than likely is an attempt by whales to get out whilst the going is good. Not all dips are recoverable and recognise what type of FUD (Fear, Uncertainty and Doubt) news are actually important. No news is not important. Rumours of currencies being banned are unimportant. News of currencies being banned is unimportant. Rumours of hacked centralised websites related to the currency are unimportant. However... news of banning of a critical aspect of the currency is important (e.g. TenX and Visa's removal of partnership + SEC regulation). News of clearly unethical behaviour is important (e.g. Tron and it's copy+pasted whitepaper). Revelations of overpromising of a feature is important (e.g. Verge and it's relatively benign security although deemed to be highly private).
Low volume dumps
Alternatively a good sign. The newest cryptocurrency players are the ones with minimal amounts invested, are more likely to be ready to sell at declining trends or no news, and often are bought up by larger players interested in either pumping the coin later or holding the coin.
ICO Prices on new coins
When buying a dip on a coin that has been released less than 3 months ago onto exchanges, first research the ICO price. If the coin is higher than 2.5x it's ICO price, you may want to continue waiting. If it is under or at 2.5x it's ICO price however, it is likely to be among the lowest price you will get for the coin.
Examples:
Electroneum (ICO price ~150sats, Lowest since trading, ~350sats, has never been as low since)
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