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How to buy the dip in Stocks

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Buy the dip and sell the rip

You often hear people say “buy the dip & sell the rip” when talking about buying stocks. This is one of many strategies people use to buying stocks. How to buy the dip in Stocks, simple buy and sell high lol, I wish it was that simple. Kidding aside, some traders, particularly day traders, buy breakouts while others like to buy dips. Dip buying in my opinion is the safest way to enter a position on a stock, but it does not come without its inherent risks.
This is something a prospective day trader would learn during their day trading education. We will go over things in this article that I use when entering a dip trade.

How to buy the dip in Stocks
What Is A Stock Dip?

A dip in a stock’s price is also called the pullback. This usually follows after a stock has extended at the price to the upside and loses some steam. This can easily be identified as the price begins to drop. Think of it as a rollback sale at a retail store where the price on an item hits a high and then the price is rolled back to a previous price for some time.
Just because a stock’s price is pulling back does not mean it is an automatic buy. One has to look at various factors before determining if it’s a safe buy or not. One should also be aware that no strategy works 100% of the time. This means, just because the pullback of the stock falls in line with what we will go over in this article. It does not mean it will always work out, but it is all about probabilities. And putting yourself in the best position possible to win.

What to look for?

One of the signs to look for in a potential dip buy is decreasing volume as the price goes lower. The reason I look for decreasing volume on the pullback of the stock is that it tends to signal towards passive profit-taking vs a high volume pullback that could signify panic selling or massive profit-taking. So I stay away from high-volume pullbacks for my day trades because they could go lower.
Another item on the list would be if the stock is pulling back towards a potential support zone. Support zones can be identified as previous tops, VWAP, 9EMA, or others but that is for another lesson. Now if there is not support zone in the area then it might just keep falling as well. Lastly, it is safer to wait for the pullback to begin to show signs of a bounce from the support zone. This helps avoid the old saying of catching a falling knife.

Day Trading in the day trader chatroom, How to buy the dip in Stocks
Why Are Stock Dips So Talked About?

Two reasons I believe buying dips is so popular is because you get to purchase the stock at a lower price. Where breakout traders are normally buying the stock at a higher price point and expecting it to keep on climbing. Buying at a lower price will allow you to potentially make greater profits if and when it bounces back up.
The second reason is that if you have received a day trading education you know how to establish a trading plan. If you do, then you know that all trade plans have a stop-loss as part of the plan. Because when you are buying a dip into support you automatically have a predetermined area as a stop. If the dip continues under support then one simply stops out of the trade and continues with their plans.

Buying dips in my opinion is a much less stressful strategy with a higher risk-reward percentage. How to buy the dip in Stocks? As I answered above, simple as, buy low and sell high, lol. Not that simple but that is the main focus and goal. And it all comes down to having a strategy and a plan in place. A simple strategy that will set you on the right side of a position, with the best risk-reward possible.

If you want to learn more and want to see this strategy live, click here to watch us live.

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