Steep price declines in the stock market happen because of several reasons, one of them being uncertainty. However, price dumps also present the perfect opportunity to buy, as uncertainty or any other reason for a drop often lasts for a short time.
Traders in PrimeXBT admit that January 2022 eliminated some gains picked by various markets globally, undermining some cryptocurrency trading strategies. Price dips were a response to growing inflation and fears about the turns taken by COVID-19 well into 2022. The crypto market experienced one of the greatest dips ever seen in the same period, Bitcoin, the standard for crypto, fell to all-time lows. Is it the right time to buy?
Certainly, healthy and expected price corrections provide a perfect opportunity for risk-off traders to double down. During the crypto bearish run, a unit of Bitcoin went for about half the price of the November 10 high of over $65K. However, before cashing in on the lows of Bitcoin, stocks, or any other instrument in the financial market, here are some things to consider.
What Are The Steps To Buy Stock During A Dip?
PrimeXBT’s live trading terminal shows that different sectors react uniquely to pressure. Tech stocks surged during the COVID-19 pandemic. Amazon stock, for example, rose 94 percent. This was due to increased demand in the eCommerce sector following the stay-at-home orders in many markets. Massive appetite for cloud deployment during the pandemic also sped up the growth of Microsoft, making it rise to historic levels.
Crypto stocks had a massive rally with occasional tanks during the pandemic. However, the stock market suffered at the start of the Coronavirus pandemic, with entire indices taking huge dips at the same period. The FTSE 100 and the Dow Jones averaged a drop of over 3 percent in February 2020, about the same time the virus had taken a massive foothold in Asia.
Some steps to consider during a massive dip include:
1. Analyzing the Sectors Hard Hit in a Crisis
The S&P 500 groups many asset classes together, making broad index funds for investor consideration. The rise and fall of these funds depict the performance of individual shares in the grouped assets, making it a simple way to determine the areas hardest hit during a crisis. Large share declines are a testament to a poor run in a certain period, with an assurance of a massive surge after adjustments when the crunch ends. Furthermore, differences in mutual funds when in free fall during a crisis and the initial figure during normal times well indicate the type of investments to buy during a dip.
2. Cutting Risk with Index Fund Investments
Individual stocks are a risky bet with massive sums of money. However, index funds safeguard the risk as they consider the entire stock listed in either the S&P 500 or NASDAQ. Meaning that money put in index funds does not directly go into a single stock, but different stocks at once. In a way, index funds are a means to diversify—the most common strategy to beat the volatile stock market. Trading trends in PrimeXBT show that dips, especially the ones occasioned by Covid-19, discount the initial investment, making it the best time to enter the stock market.
3. Targeting the Blue Chip Stocks
Big companies have steady growth and massive revenues, meaning that they have steady stock prices beyond the reach of first-time investors. Economic crises, like what we have had over the past two years, have historically cut the impressive runs of the companies, lowering their share price within the limits of many investors. While the setbacks in economic prices point to gloomy futures, blue-chip company shares often jump again to pre-crisis levels. Naturally, this makes them a hot prospect to consider during a dip for first-time stock buyers.
Conclusion
A massive drop in indices such as NASDAQ and the S&P 500 is a highlight of an economic crisis. The only upside is that it is the best time to buy discounted stocks. Making a strong analysis of the market using available data and buying high-value blue-chip stock is the best strategy to take advantage of a massive drop. Usually, many markets adjust after the crisis is long gone.
