Dip Buy

How to Dip Buy Stocks

7 min read

Are you looking to learn how to dip-buy stocks? This is a popular trading strategy where you wait until a stock falls to a support level and look for a candlestick reversal for entry. This happens either at the base of a downtrend or near moving average lines. Keep an eye out for reversal candles such as hammers, and doji’s off of moving average lines. Ideally, you want to gain entries on small candles near support levels to keep your risk levels smaller. The bigger the candle entry, the bigger the risk. 

Do you know when you should buy high and sell higher? There are times…but they are rare. 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. The stock market is a battle of buyers and sellers. As a result, what goes up must come down and vice versa. Timing the entry on a stock chart is challenging, even for the best technical traders. That is why this strategy is so important to implement right.

A dip buy is, in essence, buying a stock after the price has declined, but still an overall up trend. A trading saying is “buy the dip and sell the rip.” There are many different trading techniques out there. As a result, look for a stock trading service that explores and sheds light on many strategies.

Dip Buy Stocks

$DKNG daily candles had dip buys in the 9EMA weekly zone.

Dip Buy Basics

Typically, the best entries occur once a stock has taken off, and it pulls back as bulls take profit. New and patient bulls lie in wait to jump in when the timing is right.

Day traders are hunters of volatility. Getting in on the action can be tempting when a low-float stock rips. No one wants to miss out on a move that shoots up. 

However, chasing a move is a great way to end up with a loss. Hence the need for patience. The market trades in cycles. It would go to show that stocks are the same as well.

Those cycles often occur much more quickly than the market because of profit profit-taking. You’re a day trader, and you make your profits within the same day. Hence, it is the ability to have patience and wait for the dip buy. 

Dip Buy Strategy

The dip buy strategy is one that’s typically used in day trading. However, it’s a strategy that can also be adapted for swing and options trading.

As a result, knowing how to dip buy stocks can be a great strategy. What is the goal of any trader? To make a profit. The best way to do that is to get good entries.

Buying the dip can allow you to add to a position you’re already in. It is all about taking advantage of the price swings within a stock.

You’re essentially getting in at a discount when you purchase shares after they decline in a strong upward trend. Hence, waiting for the proper time to make your move is important.

It’s tempting to see a stock ripping and want to get in on that move. Learning to control your emotions and be patient are the biggest battles when learning stock trading.

The emotional aspect is a side many stock market trading companies don’t deal with. However, that’s usually the difference between profit and loss.

Day Trading Course Options Trading Course Futures Trading Course
DESCRIPTION Learn how to read penny stock charts, premarket preparation, target buy and sell zones, scan for stocks to trade, and get ready for live day trading action
Learn how to buy and sell options, assignment options, implement vertical spreads, and the most popular strategies, and prepare for live options trading How to read futures charts, margin requirements, learn the COT report, indicators, and the most popular trading strategies, and prepare for live futures trading

Why Buy the Dip?

Dip buying became a popular strategy because of the psychology behind it. Traders and investors know that everything trades in cycles, whether it happens right away or takes time.

As a result, the theory is that what you bought will recover back to pre-drop levels. However, there could be potential setbacks to keep that from occurring.

Remember that trading is emotional, and news moves markets. As a result, not every dip buy ends up going back up. Sometimes, the price continues to fall. 

That’s the risk we take as traders. Many times, however, dip buying works in our favor. 

Does Buying the Dip Work?

  • Buying the dip works best in an uptrend
  • When traders make profit, the price dips
  • When the price dips, this is a better buy on a rising stock
  • In a down market, finding the dip is much harder
  • It’s harder because the price continues to fall, and the dip turns out to be a fakeout.
  • Buying the dip in a down market is better for long-term investors
  • However, they have to be ok with possibly watching the price continue to fall after buying
Dip Buy Example

Trade the Candlesticks

You want to be able to confirm that dip buying is the right move when you go to purchase the stock. Hence, you need to know what the charts are telling you.

That tug of war between the bulls and the bears forms the candlesticks. They’re the foundation of trading. Not only do they provide support and resistance, but they also show traders’ emotions.

Emotion has been a driving force in trading for quite some time. 17th-century rice trader Homma realized that emotion affects the price. As a result, he wanted to develop a way to compare the actual value of rice compared with emotion.

The candlestick system was born and is one we use today. The candlestick alone tells a story. Group them, and you get patterns. Those patterns and candlesticks can confirm potential dip-buying moves.

Using technical analysis is another tool at your disposal for confirmation. While no crystal ball will tell you what a stock will do, these indicators help.

They do work best when paired with candlesticks. Again, candlesticks are the foundation of trading. Technical analysis is the icing on the cake.

Moving averages, VWAP, RSI, and MACD can be very helpful in getting confirmation of a move. It’s important to remember that indicators are lagging indicators. Hence the need for patterns.

However, you get a clear picture when you use them in tandem. There is such a thing as having too many indicators. You don’t want to bog down your charts and make move confirmations confusing.

Final Thoughts

We can’t stress enough how important it is to practice trading, no matter your strategy. The ThinkorSwim platform has a fantastic simulated trading account.

The beauty of being able to practice is not only protecting yourself as a new trader but also working out the kinks. Have we mentioned yet that trading is emotional?

When practicing, you’re not letting those emotions blow up your trading account. Instead, you’re learning to control your emotions and spot patterns and potential plays. We recommend placing hundreds of practice trades before going live. When you’re patient and willing to put in the practice, you will be much more successful when you’re doing it for real. Take our ThinkorSwim tutorial to learn how to set up your practice account.

The ability to dip buy gives the trader a better position on stocks that will continue to move higher. Getting in before it takes off again means you avoid chasing and better protect yourself, which should be the goal of every trader.

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