Double Down Crypto Strategy – Should You Double Down If Markets Fall?
What is a double dip?
The double-down technique generally involves doubling your stake when the price of the cryptocurrency you bought falls. This means that you already have an open position.
For example, buy 1000 Dogecoin (DOGE) when the price is $0.1. You then buy another 1000 DOGA when the price drops to $0.07. Double your bet.
There is talk of doubling, but the investor can buy a different amount than his first purchase. It is a form of double double. He can also continue to buy more if the price continues to fall.
A double dip therefore consists of buying more tokens when the market is moving against you to do so lower the average entry price of your purchases.
Double vs martingale in cryptocurrency trading
A double dip could be similar to a form of martingale, which is an even riskier approach. Martingale, however, considers increasing the position size after each loss. Whereas with a double dole, your initial position remains open. With martingale, for example, you close your position with a loss of 100 euros. On the next position, you will increase so that your gains are at least greater than your cumulative loss. This is a very risky approach as you can quickly deplete your capital.
Martingales are often used by bookmakers. But this table of ThePerfectPrognosis it shows us that even if we start with small amounts, we are quickly ruined!
Double drop power
A double dip can be effective in that it can allow you to recoup your losses more quickly if the markets rise after your last purchase.
Suppose we buy 1 ETH (Ethereum) to $1,800. In the following days, ETH continues to decline. For $1,700 we buy another 1 ETH. So we have an exposure of 2 ETH.
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We have doubled our risk, but it is no longer necessary for ETH/USD to rise to $1800 to return to the green. We have lowered the cost of profitability, that is, the price at which our portfolio returns to the zero point. This price has increased from $1800 to $1750 (-$50 for the first position and +50$ for the second).
So, if Ethereum goes back to $1800, our first position is in itself a break-even position, while the last position allows us to have variable gains of $100.
Double dip risks
However, if Ethereum continues to fall, we will quickly realize that a double dip is a double-edged sword. In the end we have a double exposure in the minus!
Therefore, it is advisable to wait for an opportune moment to double your bet. But it is a very difficult task, like predicting a bottom.
That’s why we recommend cost averaging strategy or DCA. It’s an investment strategy that resembles and involves double-downs when markets fall.
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