Watch our video on how to use the buy the dip strategy.
There's a saying in the industry that says buy the dip and sell the rip. Dip buying is an incredibly popular trading strategy. The video above gives you an overview on how to dip buy stocks. Read More
Learning how to buy the dip sell the rip and knowing how to dip buy stocks isn't as hard as many traders might think. But there is a trick to dip buying.
Ever heard of the saying buy the dip sell the rip? Well, this is a popular saying among many traders. The concept is as simple as the saying. “Buy the dip” essentially means to buy at support levels and sell the rip means to sell at resistance levels. Easy right?
The good ole battle between the bulls and the bears. Bulls push to create bull run stocks up and the bears try to bear it back down, thus creating trade-able support and resistance levels. It’s a battle that is as ancient as time itself.
When price is bullish, you're looking for Bullish Candlesticks. You need to be able to recognize the bullish candles to identify the bull run and also when candles turn into Bearish Candlesticks.
Support and Resistance is the name of the game when trading. Buy low and then sell high. Buy at support levels and then sell at resistance levels. Unless you’re our good friend Arlington. He does the exact opposite. Don’t be Arlington. Love you buddy.
So, back to how to dip buy stocks. Buying the dip just means buying at support levels, within an overall uptrend. You need to make sure that the overall trend is up, or buying the dip may be riskier, or pointless.
The daily and weekly charts might be in strong uptrends, as with a stock like NVDA currently. When NVDA pulls back to support and dips, bulls rush in to buy the dip and move the stock higher.
Whether that's on an intraday, daily, weekly, or monthly chart, you need to pick your strategy depending on your time frame. Take a look at the weekly and daily charts below. We have highlighted dip buy levels in yellow. These areas were bought, almost religiously by the bulls and the bears retreated to hibernate until the next battle:
Traders are creatures of habit and they look at the patterns and for trading signals. These various patterns are repeated time and time again by other traders and algorithmic trading computers.
Candlesticks are formed by the battle between the bulls vs the bears and this battle leaves clues which are discernible as patterns. Traders spend a lot of time studying these! Some popular patterns are the cup and handle pattern, Bull Flags, Pennants, and Double Bottoms.
Let’s probe down a bit deeper into dip buying stocks and support and resistance.
If you want to effectively learn how to dip buy then learning proper technical analysis of stocks skills is going to be your best course of action. Learning how to read stock charts will be critical to your success on any type of trading. Whether you're looking to do day trading strategies, swing trading strategies, or options trading strategies.
There are many different ways on how to dip buy stocks. Day traders sometimes like dip buying penny stocks on intraday time frames using 5 min and 1 min charts.
Swing traders like to use map out trend lines and find support levels on daily charts. Long term traders like to watch weekly and monthly charts and add some fundamental analysis of stocks to be successful.
If you want a very helpful tip to remember when buying stocks, look for a stock that's selling off and watch for the bulls to come back in. Then look for your entry as close to the 9 exponential moving average as possible.
The 9 ema is a great support indicator to watch. We also like to add the 5 simple moving average as a plotted dot, rather than a solid line, high momentum stocks travel the 9 and 5 SMA very well and provide great entries for “dip buyers.”
Have you ever heard of the term pullbacks? This happens when a stock moves up and then gravitates back to moving average lines (support). Traders are creatures of habit and they want to look for good entries to limit their risk.
Risk is lower if you are entering a trade closer to support. As price slowly moves up or goes parabolic on a stock, it naturally wants to pullback or crash right back down to the moving average lines. Practice learning these stock behaviors in a paper trading account before going live!
These moving average lines are the entry areas that other traders will look at to reenter the stock on a dip, if they see potential continuation upwards. Some popular moving average lines are the 9 ema, 20 ema, and the 50 and 200 sma's.
A very popular indicator that many day traders pay attention to is vwap. The vwap trading indicator is basically the average price of a stock trading intraday. Many of times stocks will move up intraday and then drop down to VWAP where traders will often buy the dip for potential bounce and continuation upwards.
The gap and go strategy and red green trading are other popular day trading strategies as well, which is also a good precursor that leads into a buy the dip sell the rip trading strategy. Take a peek at them when you get a chance! Also, check out the list of stock market books that we recommend. We teach how to dip buy stocks live in our stock training rooms. Check out our trading service to learn more.
If you buy the dip near the 9 ema then a safe potential stop loss level would be the first candlestick close below the 9 ema. It's important look at other time frames and technical indicators as well to confirm your trade.
A candle close below the 9 ema shows potential weakness or loss of momentum. So, caution is needed. “Ride the 9” is a very popular trading strategy that we have taught others in our coaching sessions and trade-room.
If you're looking to ride the 9 ema then you could watch for a stock to sell off and find support. Then watch for the 9 ema to cross the 20 ema. Look for a candle to close above the 9 ema after the crossover.
Then buy the first candle to break above that previous candle close price using either that candle or the 1st candle close below the 9 ema as a stop. Let’s look at AAPL below:
Note where the 9 bullishly crossed the 20 ema in the highlighted area. Also, you can see that the 9 ema has been a strong area of support and provided traders and investors with a nice opportunity to “ride the 9”. Also, this provides a good opportunity to buy the dip sell the rip. You can sell for profit when prices gets overextended above the 9 ema then look for reentry around the 9 ema as well. All depends on your risk tolerance.
Just a reminder that everyone's risk management and tolerance is different. There isn't a rule of thumb for what price to use as your stop loss with buying stocks, but always pre-defining your entries and exits is critical on every trade.
Also, always remember to take your profits! You can always find more trades to make in the market. The opportunities are endless, especially if you have a great scanner like Trade Ideas. Market Club is another great scanner as well. Check out our Market Club Review.
Please note, the Ichimoku Cloud was shown in the first example of NVDA above. It is a very helpful indicator to use on multiple time frames. Its main function is to provide a visual cloud to show areas of support and resistance, which can help you to find where to buy the dip.
There are many of different ways on how to dip buy stocks and that's why it's important to find the trading strategy that fits your trading personality. Lastly, please remember...buy at support and sell at resistance or buy the dip and sell the rip!
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