⚠️ Buy The Dip! - The Surprising Data...

Now, here's a very popular idea. If you believe in an asset, if you want to buy, say, the S&P 500 long-term or you want to buy Bitcoin long-term, then why not buy the dip? Buy whenever the price is coming down, then you get a better entry. But I actually ran the numbers. Is it really smart to buy the dip? Is this better compared to just buying randomly compared to just dollar cost averaging in? I ran the numbers for various markets, for the stock markets, for precious metals, and also for crypto. And I want to share that data here because there are some surprising results. Different markets behave differently and even the same market tends to change its behavior over time. What used to work in the past might not work anymore. And some markets are more efficient than others. Now let's start with the stock market. And the setup is very simple. We buy whenever yesterday was negative and we sell whenever yesterday was positive. We exclude any trading fees in this because this is not a trading strategy. This is simply a question whether or not this approach in general works. Now, this is a very long-term chart of the S&P 500. It starts in 1872. So, this is 150 years of data. Over here, we've got the Great Depression. here the global financial crisis. Bitcoin was created over here. And what we see here at the bottom, that's a simulation. What happens on a given day if we were to buy when yesterday was negative and we were to sell or bet on falling prices when yesterday was positive? Interestingly enough, if we followed that strategy, we tended to have worse entries up until the year 2000 roughly. So before the year 2000, it was better to rather panic sell, right? When we had a negative day yesterday, there is a higher likelihood that today will be negative as well. But since the year 2000, this seems to have flipped. people seem to believe that the stock market will always recover. There's more long-term optimism. And so whenever there is a price dip, there tends to be more buys than sells. on average more appreciation. Now, the effect is not strong at all. But we can clearly see that if you're wondering, should I buy today or should I buy tomorrow? If you just wait for a negative day, you should be doing okay. It's better to buy on a day when everything is red than green. Now, let's have a look at the same for the NASDAQ 100. So, for more volatile technology stocks and interestingly enough, we've got the same turnaround close to the year 2000. So, before the year 2000, it was better to rather follow the trend. When yesterday was positive, it was better to buy as well. And when yesterday was negative, was better to sell the next day. But at around 2,000, maybe already 1998, that has clearly turned around. Again, all of those tests completely ignore trading fees. So, please do not trade based on that. But if you're considering to buy anyways, or sell anyways, you might want to wait for the opposite day. when you're selling for a day where prices are going up, and you might [snorts] want to wait for a buy when prices are going down. Now, there are many ways to potentially explain this, but what I think is going on here is that people are simply more active now in their investing. In the past, people might have just contributed to a 401k. They bought at any time. They didn't really care about it. But now, people have active access to the stock market via the internet. And so, there's more active trading by the retail investor. They simply just might buy whenever things are coming down because stocks long-term tend to appreciate. Not necessarily because companies are getting much better but because the monetary base is expanding and the US dollar is devaluing over time. So the US money expands by roughly 6. 8% peranom. That's our expected return for anything that keeps its value versus the US dollar. And since we talk about preservation of purchasing power, let's switch over to precious metals. How does this work in the gold market? Here is the result. When there's a true gold rush, it's not that good to be contrarian even on the micro. So when everybody is buying gold left and right, then the overarching macro trend overrules what happens in the micro, right? The micro profit taking and the micro buying the dip. But when we aren't in those extreme situations, and that's since the 1980s, then again, being contrarian on the micro does make sense. What about the silver market? that's a bit more speculative. The answer is the effect is even stronger. So, we should be buying into silver when it crashed on a particular day and we should be selling silver when it's rallying on a particular day. Again, this is just a refinement for your general strategy, right? This is not a strategy that works every single day because this is assuming that there are no trading fees.

But if you've got your overarching strategy anyways and you're following trends, you're following micro indicators, and you're just trying to time the micro on what specific day should I buy or sell. Doing the exact opposite of what the market is doing on a particular day does make sense. If you're selling, look for a green day. If you're buying, look for a red day. This is working very well for silver, even better than it is for gold. But again for the stock market it also tends to work for the last 25 years or so. Now this is a crypto channel. So how does this work with crypto? Should we wait for a dip on a particular day to buy Bitcoin to buy Ethereum to buy Solana? Does this work to a different degree for different assets? Let's have a look at those three. Bitcoin, Ethereum and Solana. Should we buy the dip on a negative day if in general we are bullish about the asset? Or in other words, if we for example dollar cost average in, we buy once every month. Should we maybe buy on a day when we've got negative prices or when yesterday was quite a bit of a drop? That's actually what we're testing here. So, let's have a look at Bitcoin and let's see how the strategy developed over time. So again, we've got our non-compounding fixed amount that we bet every single day. And interestingly enough, buying on a negative day was not that great of an idea. Up until 2018, so since 2018, interestingly enough, there's a lot of changes in crypto. The number of active addresses didn't grow that much anymore for Bitcoin. Bitcoin itself did not outperform gold or the NASDAQ 100 anymore. It just performed similarly to it. So, it's interesting. 2018 is really a turnaround. And the way how Bitcoin behaves during price dips has also changed. So, now it's not just a speculative asset where people are worrying whether or not Bitcoin will survive. Now, it's more of an asset allocation towards a diversified portfolio. And so when Bitcoin is down on a given day, they tend to be slightly more buys than when it's going up. What's noteworthy though is that this effect was much weaker in the last 4 years. That is not true for Ethereum though. So here is the data for Ethereum. Again, the turnaround was in 2018, but really for Ethereum, it does make sense to buy the dips on a given day. If you're buying into Ethereum and you're wondering what day should I buy, it should be after a correction. It should be when yesterday was a bearish, a negative day. And this seems to be working pretty much every single year since 2018. Just have a look at this. Here are the same results for Solana. Now, Solana is very volatile. And here the result isn't as conclusive. So, it seems to not really matter on what day Solana is bought. But for Bitcoin and Ethereum, the effect definitely exists. And so, isn't it fascinating? It seems like as markets mature, as people gain more and more confidence in holding an asset long-term, the strategy of buying on a dip day or on a day when yesterday we saw the dip seems to make more sense. If the market doesn't have such a strong opinion though where the asset is going long-term, the dips might not be bought that actively. That's what we see in Solana today. the early days of Bitcoin and Ethereum. That's also what we see in the very early days of the stock market when people tended to panic sell. Now, it seems to be common knowledge that the stock market tends to go up over time and so every dip is bought. It seems to be common knowledge that Bitcoin is likely going to stay around for the next 5 to 10 years. So, the dips are getting bought. For Solana, that's not so clear. So, the dips aren't getting bought as aggressively. I hope you got some value out of this video. If you did, feel free to give it a like. Feel free to also subscribe. I publish videos regularly. the access to the tool that I've just shown this back testing tool that's available to the premium members. A link to premium pops up here on the screen as well. Thanks for watching. See you next time.