Buy the Dip: What It Is, Indicators, & How to Do It

In other words, Bitcoin is traded as a high-risk, high-reward asset that can «dip» at a moment’s notice. This approach differs greatly from the common mistake of continuing to invest money after losing money in a failing position. Whether it’s a struggling startup, a sour real estate investment, or a stock with a broken narrative — throwing more capital at a deteriorating setup is often a recipe for regret. If your original bullish premise no longer holds, it’s usually wiser to step away than to double down.

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Not long after you make your initial investment, the company’s shares are sold off heavily, and the price drops 20% to $8. The idea of buying low and selling high may sound very lucrative but following the herd is also not the right thing to do. Picking the right investments that suit your risk profile, objectives and are fundamentally strong for the long term can help you take the right advantage of such situations.

Understanding “Buy The Dip”

Buying low and selling high is the name of the game, and dip buying is one of the best strategies out there. This strategy allows you to get better entries on stocks before they reverse in price. Knowing how to dip buy stocks will make you a better trader.

When you improve your skills, build confidence, and develop consistency, then think about scaling up into bigger positions. That’s why it’s important to have a stop limit to help you limit your risk. Had you invested all the money from the beginning, $50,000, you’d have nearly doubled your money to $100,000 within the course of a year.

• Rebecca Baldridge, CFA, is an investment professional and financial writer with over 20 years’ experience in the financial services industry.
• And I think investors should begin to think about moving capital methodically with that mindset as well.
• Now that we understand the concept of buying the dip, let’s take a look at some real-life examples where investors successfully employed this strategy.
• Because it relies on a rebound in the market’s price after dropping, ‘buying the dip’ only works in a bullish environment.
• We recommend placing hundreds of practice trades before going live.

The examples and/or scurities quoted (if any) are for illustration only and are not recommendatory. Investing in a dip can provide discounted entry into assets, reduce risk by buying at lower prices, and offer short-term gains as the market recovers. In this following 10-month dataset graph, a model company ABC’s stock price starts at 100 and experiences fluctuations, showing potential opportunities to buy the dips and benefit from price recoveries. This data has been used to create a line graph to visualize the strategy over a shorter time frame. However, it’s important to note that CFDs are leveraged products. This means that, although you’re trading on margin, both profits and losses are calculated based on your full position size, not your margin amount.

Context: Year 2025 Tariffs, Trump, and Market Jitters

Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice. The risk with buying the dip is that you can lose preparing for a recession a lot of money if you get it wrong. Whereas, if you hadn’t bought the dip and had just held onto the 500 shares you initially purchased for $10 a pop, your gains would only be 20%. One may simply think about it as a kind of market correction that allows you to add a few units of a stock you hold to average its cost in your portfolio.

Trending Stocks: How to Identify What’s Hot in the Market

According to a 2022 report from Hartford Funds, dividends made up an average of 40% of total returns from 1930 to 2021. By sitting on cash, investors can miss out on an import source of growth. This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealer or an investment adviser.

• No more feeling chained to your screen as you scramble through complex technical indicators or track company news.
• But this compensation does not influence the information we publish, or the reviews that you see on this site.
• In the past few weeks, even as markets declined sharply, we at the InvestingLive Stocks Telegram channel had three dip-buying attempts — on AMD, Boeing, and Microsoft.
• Buying the dip is a strategy that can work well if you take a long-term investing approach to your investments rather than a short-term trading approach.

So, profits and losses can both substantially outweigh your initial outlay. It’s also worth mentioning that buying a dip as a trader often means using derivatives like CFDs. These are leveraged trades, meaning you’ll put down an initial deposit, called margin, to open a larger position.

Look at the financials, management, and industry trends. While it sounds great in theory, buying the dip can be a challenging investment strategy to implement successfully. To make it work, you need to make consistent, good predictions about the market’s future direction (and no one can do that 100% of the time!).

It could also be during macroeconomic headwinds like inflation, recession or bear markets. Even cyclical occurrences like a mean reversion or a pullback of that market would count. The price of Bitcoin had dropped more than 25% over the previous month. This is an extreme example of the buy-the-dip strategy.

Please ensure you understand how this product works and whether you can afford velocity trade to take the high risk of losing money. When the U.S. stock market dips, it doesn’t have to mean doom and gloom for long-term investors. Rather than selling off, stock market dips can be a time to remain steadfast in your investments. The investing information provided on this page is for educational purposes only.

Once a stock’s trend is established, it’s often likely to continue. So keeping an eye on the price action could help you determine a good dip buy opportunity. Dips can create buying opportunities that improve long-term returns. But trying to time market bottoms is incredibly difficult, and it’s often impossible to judge whether a severe sell-off is just a temporary overreaction or a harbinger of a prolonged bear market. Investors should remain informed, exercise patience, and avoid impulsive decisions based on short-term market moves.

We want the everyday person to get the kind of training in the stock market we would have wanted when we started out. Our traders support each other with knowledge and feedback. People come here to learn, hang out, practice, trade stocks, and more. Our trade rooms are a great place to get live group mentoring and training. The ability to dip buy gives the trader a better position on stocks that will continue to move higher.

You don’t want to buy what you think is a dip, then watch as the stock tanks. Price action helps determine a stock’s direction and momentum. If you want to make solid trades, look for a stock that has the momentum to 20 50 and 200 day moving average break out of ranges.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information.

We’re going to have to go through some ups and downs still. We’re going to see some turbulence when it comes to earning season coming up. We’re going to hear CEOs and CFOs talk about how they’re not really sure what to do. What we’re looking for right now are companies that have a horizon where they can invest through this downturn, not around this downturn.

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