Buy The Dip Definition
What is “Buy the Dips?”
“Buy the Dip” refers to purchasing assets such as stocks or crypto when the price of an asset drops yet shows the potential to recover in price over the near and long term.
How Does Dip Buying Work?
Dip buying happens in 3 specific stages: the initial runup, the dip, and the recovery phase.
For example, AMC stock is one of the most popular dip buying targets because this meme stock makes big moves on high volume and recovers nicely after big drawdowns.
AMC shares offered 2 major dip buying opportunities during the first half of 2022 as evidenced on the chart below.
The two best entry points were March 15th, 2022 and May 11th, 2022 when AMC stock formed a bullish green candle and starting going up on higher volume.
When Should You Buy the Dip?
In order to successfully “Buy the Dip”, you must buy the asset during the dip phase when market sentiment turns negative and presents a dip buying opportunity.
A good rule of thumb is to look for a bullish reversal and several consecutive days of green candles in a row.
Why Should Investors Practice Dip Buying?
Dip buying allows investors to acquire high quality assets at bargain prices so they can reap the rewards once the market realizes the error and correctly values the asset.
For example, retail investors recommend buying the dip on popular stocks such as Tesla (NASDAQ: TSLA) or cryptocurrencies such as Bitcoin (BTC). These assets possess immense long term intrinsic value and are great dip buying targets.
Risk Factors: Beware Catching a Falling Knife
Dip buying has its risks and one of the biggest ones is mistaking a dip buy for catching a falling knife.
Just because a stock or crypto falls in price doesn’t mean it will recover anytime soon.