Buying Bitcoin at much higher prices than a few months ago can be difficult. However, with the right strategies, you can buy Bitcoin during the dip with a favorable rate of reward while riding the bull market.
Confirming Bull Market Conditions
Before stockpiling, make sure you are still in a bull market. The MVRV Z-score helps identify overheated or underheated conditions by analyzing the deviation between market value and perceived value.
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Avoid Buying when the Z-score reaches high values, such as above 6.00, which can indicate that the market is extended and approaching a strong bearish recovery. If the Z-score is below this, dips are likely to represent opportunities, especially if other indicators coincide. Do not aggressively collect during a bear market. Focus instead on finding the macro bottom.
Short Term Managers
This chart shows the average cost base of new market participants, providing an overview of the Short Term Manager’s activity. Historically, during bull cycles, whenever the price moves back to the Short-Term Price Line of the Short-Term Owner (or dips slightly below), it presents excellent opportunities for accumulation.
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Gauging Market Sentiment
Although simple, the Fear and Greed Index provides valuable insight into market sentiment. A score of 25 or less usually indicates extreme fear, often accompanied by irrational selling. These times provide favorable conditions for receiving reward.
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Spotting Market Overreaction
Funding Ratios reflect the trader’s sentiments in futures markets. Negative Funding during bull cycles is especially telling. Exchanges like Bybit, which attract retail investors, show that negative Rates are a strong signal to accumulate during dips.
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When traders use BTC as collateral, negative prices often indicate excellent buying opportunities, as those short of Bitcoin tend to be cautious and deliberate. This is why I prefer to focus on Coin Funding Rates as opposed to traditional USD rates.
Functional Address Sensing Index
This tool measures the difference between Bitcoin price and network activity, if we see a difference in the Active Address Sentiment Indicator (AASI) it shows that there is excessive price action given how strong the underlying network usage is.
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My preferred method of execution is to wait until the 28-day price change drops below the lower deviation band of the 28-day change in active addresses and cross back above. This buy signal confirms the strength of the network and usually indicates a reversal.
The conclusion
Accumulating during bull market dips involves managing risk rather than chasing bottoms. Buying slightly higher but in oversold conditions reduces your chances of getting a 20%-40% drop compared to buying during a sharp rally.
Confirm that we are still in a bull market and the dips are for buying, and identify favorable buying positions using multiple metrics for convergence, such as Short-Term Manager’s Visible Price, Fear and Greed Index, Funding Ratios, and AASI. Prioritize small, incremental (dollar cost average) purchases over going all-in and focus on risk-reward ratios rather than absolute dollar amounts.
By combining these strategies, you can make informed decisions and take advantage of the unique opportunities presented by bull market dips. For more depth on this topic, check out the latest YouTube video here: How to Capitalize on Bitcoin Bull Market Dips
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Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Always do your own research before making any investment decisions.