What is 'Buy The Dips'
"Buy the dips" is a slang phrase referring to the practice of purchasing stocks following a decline in prices. After a significant dip in the price of a security or stock index, investors should increase positions or purchase different stocks to capitalize on what is seen as an eventual upswing.
BREAKING DOWN 'Buy The Dips'
The concept of buying dips is based on market fluctuation. By purchasing stocks after a dip, investors are essentially buying shares at a discounted sale price. Like all trading strategies, buying the dip is not a sure thing, because some stock price drops are due to negative changes in the underlying company's fundamentals. For example, investors who followed this strategy around the bursting of the dotcom bubble may have lost money because internet companies lacked a revenue- generating business model. Buying the dips only seems to work when the market is oversold.
What Is a Dip?
Buying the dip means buying stock when the price reaches a low, when the stock experiences a significant drop in price. The degree of significance depends on the price range of the stock, but on average, a larger dip can mean a greater opportunity. The conundrum for traders is timing the reversal, which is very difficult.
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