How To Dip Buy Stocks

You often hear people say to buy the dip sell the rip when talking about
buying stocks. There are many ways to buy stocks some traders
particularly day traders buy breakouts while others like to buy dips. Dip
buying in my opinion is the safest way to enter a position on stock but it
does not come without its own inherent risks.

 

Obviously, this is something a prospective day trader would learn during their day
trading education but we will go over a few ideas in this article that I
personally use when entering a trade on a dip or buying a stock on a
dip.

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What Is A Stock Dip?

A dip in a stock’s price is also called the pullback. This usually follows
after a stock has extended at price to the upside and basically loses
some steam and the price begins to drop. Think of it as a rollback sale
at a retail store were the price on an item hits a high and then the price
is rolled back to a previous price for a period of time.

All Dips Are Not Created Equal

Just because a stock’s price is pulling back does not mean it is an
automatic buy one has to look at various factors before determining if
it’s a safe buy or not. One should also be aware that there is no strategy
that works 100% of the time so just because the pullback of the stock
falls in line with what we will go over in this article does not mean it will
always work out that the stock pops back up in pricing.

 

One of the signs to look for in a potential stock dip buy is decreasing volume as the price goes lower. The reason I look for decreasing volume on the pullback of

the stock is that it tends to signal towards passive profit-taking vs a high
volume pullback that could signify panic selling or massive profit-taking.
So I personally stay away from high volume pullbacks for my day trades
because it could go lower.

 

Another item on the list would be if the stock is pulling back towards a potential support zone or not if there is no support zone in the area then it might just keep falling as well. Lastly, it is safer usually to wait for the pullback to begin to show signs of abounce at the support zone this helps avoid the old saying of catching a
falling knife.

Why Are Stock Dips So Talked About?

Two reasons I believe buying dips is so popular is because you get to
purchase the stock at a lower price than where breakout traders are
buying thus allowing you to potentially make greater profits if it
bounces back up.

 

The second reason is that if you have received a day
trading education you know how to establish a trading plan and if you
do then you know that all trade plans have a stop-loss as part of the
plan.

 

Because you are buying a dip into support you automatically have
a predetermined area as a stop if the dip continues under support then
one simply stops out of the trade and continues on with their plans.
Buying dips in my opinion is much less stressful than buying breakouts
at highs.