What is Buy The Dip?

By Dorothy On Nov 24, 2019

What is Buy The Dip?

“Buy The Dip” is purchasing an asset after it has been reduced. Depending on the situation in which it is used, buying a dip has different contexts and various working rates. Some traders may say that they are buying Dip if an asset is in a strong uptrend in the long term. And they expect the uptrend to continue after the price corrects. Others may use this phrase when there is no uptrend, but they believe that an uptrend may occur in the future. Therefore, they are buying when prices fall to benefit from potential future price increases.

After the price has dropped from a high, some traders consider this reduction to be an advantage. This will motivate them to buy properties or add to their current long positions. And they expect the market to reverse after a sharp decline, which will bring profits to them when prices rise higher.

Trading strategies

Traditionally, trading strategies were a way of buying and selling on the market. This is mainly derived from making trading decisions of investors. As with all trading strategies, buying Dip does not necessarily guarantee profits for investors. The decline in assets may be due to a number of negative reasons, such as fundamental analysis or signals from technical indicators. However, when the price plummets to a fixed price does not mean it will not fall further.

Bitcoin from $ 10,000 down to $ 8,000 may provide a good buying opportunity. However, this is not certain. Unexpected bad news could bring prices down further. Therefore, an excellent opportunity to buy Dip depends on the news that makes the currency decrease. Traders need to consider and analyze carefully before deciding to buy the dip.

Risk

All trading strategies and investment methods should have some form of risk control. In the financial world, risk management is one of the most important factors. This will determine the duration of your stay in the market.

Most traders and investors will continue to look for a stop loss to control their risk when buying an asset after it drops. For example, Bitcoin dropped from $ 10,000 to $ 8,000, which is why they bought it. However, they are not sure if Bitcoin will rebound when it drops to $ 8,000, and they have set a stop loss at $ 7,700. The best stop loss is that you should place below the next important support. And more importantly, this stop loss is appropriate for your capacity to bear losses.

How to apply to Buy The Dip correctly

We cannot see this as a hazardous investment strategy based solely on the theories as mentioned above, because no one can know the right Dip for us to buy. However, we will have a way to increase the winning rate when buying Dip through the following methods.

Apply the Buy The Dip strategy correctly

With this method, you need to be very proficient in using Price Action signals.

Buy the Dip: you should use one of the three dominant reversal candlestick patterns: Bullish Engulfing, Hammer, Morning Star. It is important that these candlestick patterns appear in critical support areas, such as the MA 200, the previous price reaction areas or the golden ratios of the Fibonacci indicator.

If you can combine Buy the Dip with oversold on RSI, MACD divergence, this is also one of the great strategies.

Buy the Dip in the trend

If Buy the Dip is also very risky and dangerous. But if Buy the Dip is an uptrend, it will yield a higher win rate. And in the uptrend, we only prioritize Buy orders and should not place Sell orders.

In an uptrend, we always have small pullbacks, which will provide us with excellent Dip buying opportunities.

We can combine with a trendline to buy Dip. In some cases, the DIP in this area will overlap with the oversold area on RSI or Stochastic.

Conclude

Buy the Dip is a precarious strategy, but it can be very profitable if we apply it correctly. However, when conducting a dip purchase, do not forget to set a stop loss to protect your account.