Can anyone explain to me the method called "Buy the Dips" when dealing the stocck market?

Question

Hi all,
I am working on a school project dealing with the stock market. I hear there is a dealing method called "Buy the Dips" but I don't really understand what it is. Could anyone give a small explenation about this term?

thanks!

Can any of you guys say anything about the connection between the "Buy the Dips" method and the volume of the traded share?

Answer 1

Go to Yahoo Finance and click on a chart of the Dow.

The Dow made a Double Bottom on 6/13 and 7/14. As a trader, I buy all Double Bottoms, and sell all Double Tops. That is one way of looking at "Buying the Dips" or selling the rallies. There are two sides to every market, not just the upside.

What nobody else mentioned here, is that you only "Buy the Dips" in an Uptrend. Many people just don't get it, and think that just because a stock goes down, it's a better value. Not true. It can usually go lower first, until it finds significant Support.

If Yahoo.com was a great buy at $130/sh, it must really be a good deal at $60, right? So anyone that bought that Dip lost over half their money, because Yahoo is trading at $25 today.

Same thing with Exxon. All the great brokerage houses were recommending to buy Exxon, from $45 all the way down to $10. And the SEC approved each quarterly filing.

So no, "Buying the Dips" doesn't work in just any situation, as other people here would have you believe. They may think they know what they're talking about, but they're not traders. "Buying the Dips" is a "trading" activity, not an "investing" activity.

Back to the Dow chart. If you connect the lows, beginning on 7/14 to present, you can visualize an Uptrend Line. You can also think of the Uptrend Line as a Support Line. Each time the Dow pulled back (declined) to the Uptrend Line (a dip), would be the time to buy. In fact, each time the Dow touched the Uptrend Line are the lowest risk trades on the chart, aside from the Double Bottom, because a Protective Stop can be placed just on the other side of Support, just a few points away.

Placing a Stop at the time of entry of the trade, means you've made an objective evaluation ahead of time, and defined your risk, rather than waiting to see what happens and trading on emotion, which is almost always unwise.

Answer 2

The other answers provide good explanation about "Buy the Dips", which is part of Technical Analysis school of thought instead of Fundamental Analysis.

I will attempt to provide answer on when to adopt this strategy and when not to.

You need to analyze the price chart. How long back? Depends on your trade time frame. Can be yearly, monthly or daily or even minutes. If you can connect several lowest points in the chart using a straight line, which we'll call as support line, it's a good time to deploy "Buy the Dips". Anytime the stock price goes down towards the support line, "Buy the Dips" as it has about 70% probability that the price will reverse back up.

Hope it helps

Answer 3

Stock prices run in cycles. Stocks become over bought and over sold. If you buy the stock when the stock is oversold, then potentially you have a good chance of making some money on it when it rebounds.

There are indicators to tell when this has occured. They are RSI (relative strength indicator) and Williams %R. If you look at a chart of MMM you will see that on July 10 the RSI dropped below 30 and the Williams %R dropped below -80. I have included a link to the definitions of Williams %R. Those are over sold signals and the stock is due for a rebound. It is at this point that one would consider buying it.

Answer 4

It is called as "BUY at the Dips" and not Buy the Dips. It means that the price of any scrips comes at lower as targeted or goes much lower than that, it is time to BUY.

Answer 5

what that means is to buy stock when a stock is dropping.
if a stock goes from 40 to 35, you would buy some..if it goes back up to 40 that's good..but when it goes back down to the 35 range, you would buy more again.

it's really a dumb method of buying stock.
that's how all those yahoos got buried back in 2000.
don't do it.

Answer 6

Think of it as a graph and you have your "set line" (center line) and anything that DIPS below is usually a good BUY

http://www.uic.edu/classes/bios/bios100/labs/graphs10.jpg at about 510 on this graph would be a DIP

Hope that helps out.

: )

Answer 7

....IT MEAN IT WENT DOWN IT A FUNNY WAY OF SAYING DIP IT MARGIN SWING IT DIPPING 22+
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