The Art of Buying the Dip
Buy the Dip, every investor and trader has heard the phrase. Not to long ago I saw someone laugh at the sentiment of buying the dip, commenting by tweet that they are glad they didn't "buy the dip." Yes, it's easy to say that in December 2018 (when the tweet was posted), because the market had been in decline since October 3, 2018. But it was clear that the person that tweeted his imagined victory for not buying the dip is/was misguided.
A deeper dive into the profile and I discovered the tweet came from a struggling day-trader. Not to bash the trader in anyway, day trading is difficult, and many will struggle before being successful, hopefully he will make it.
However buying the dip works in trading and investing, but lets focus on investing and why it works.
Good investors. Smart investors. Investors with experience and profits, investors who are constantly looking for good places to put their money always have a list. There is always a list of stocks or investments that they're keeping their eyes on. The investor is waiting for the investments on this list to drop in price, so that they can invest at a price where they consider the purchase to be a bargain. After markets pull back, and then begin moving back up, those names that were on a list are now in a portfolio and making money.
As you can see from the S&P 500 going all the way back to 1980 there have been big dips and small dips. After each dip the market rises again, so why wouldn't we buy the dip? Investors usually have a price in mind that represents value to them, traders will have a price or an area on the chart that represents a bargain to them. Buying the dip works for fundamentalist and technicians.
The art of buying the dip just comes down to understanding price verse value and being patient.
Do investors mistime the dip? Of course they do, all of the time, but that doesn't mean it isn't a good strategy.
Buying the dip works, but it works best for patient investors and traders who understand the difference between price and value. If you're not a "buy the dip" investor or trader I would suggest you give it a serious try. The investment community doesn't yell "buy the dip" when stock prices fall because it doesn't work, they do so because it does.
Buy the dip. Invest and trade safe my friends.