First of all, dips happen all the time. There are always pullbacks in price and they happen for various reasons. Here’s a checklist I quickly wrote down for myself. The chart here shows Square, mostly because it has been on an epic run! Congrats to those who have enjoyed it. I was once a proud owner of this name, but sold after it seemed to get a little "frothy." Feel free to share your thoughts in the comments after reading my tips for buying dips:
1. Always know why you’re buying now and not waiting patiently. Why is this the dip to buy and not another one? Take the time to do all the research you need.
2. You should do enough research to explain why now is the time to buy to anyone. And it should be understandable. Sometimes writing it down helps. Being able to explain it in a simple format is equally important.
3. Have a plan. Know where you will exit if it comes to that. Because that does happen. The old saying plan the trade before you make the trade. It's way too tempting to just rush in and buy without any regard for the necessary plan.
4. Sometimes a dip can turn into a correction or crash. Reminding yourself of this can slow down any impulsive actions. That's really the key here. Avoid impulsive buying. I have done this many times in my career and it has rarely ever worked well.
5. Find technical indicator that works well for you. Learn to love it. Study it. Understand why and what it does. It can be a handy tool to confirm your process or look for the conditions you want. On this chart I am having some fun with the open source script Moving Regression Prediction Bands. I like scripts like this because it's using statistical method to show price anomalies.
6. I also like using the Price Range tool to measure the percentage change in the dip. And compare it over time. I've listed three corrections on this chart. The key is to get a sense of where price has come from. Others might use fundamentals and wait for certain ratios to align, for example an attractive PE ratio or something like it. It’s up to you, but having a trusty tool can be of help.
7. Timing the markets is really hard. You can also view dips as a time to lower your cost basis in your favorite positions or as a potential way to swing trade. But once again, that's probably something you want to define *before* diving in.
8. The saying “Never risk money you can’t afford to lose” is especially true in dips and volatility. Additionally, if you are looking to buy a dip, there's no reason to buy all at once. Take your time. Wait... Wait...
9. Look at your account history and study your previous trades in similar times. Learn what's worked and what has not.
10. There are no easy answers to markets, but using the right tools and following some basic risk management principles can be of help. That's the key point to this post.
Hope you found it interesting. They are a few rules I have in mind. Please feel to share your own in the comments. Or even better, publish your own idea. I will try to do this again as well. There are some other topics I look forward to adding to this post.
1. Always know why you’re buying now and not waiting patiently. Why is this the dip to buy and not another one? Take the time to do all the research you need.
2. You should do enough research to explain why now is the time to buy to anyone. And it should be understandable. Sometimes writing it down helps. Being able to explain it in a simple format is equally important.
3. Have a plan. Know where you will exit if it comes to that. Because that does happen. The old saying plan the trade before you make the trade. It's way too tempting to just rush in and buy without any regard for the necessary plan.
4. Sometimes a dip can turn into a correction or crash. Reminding yourself of this can slow down any impulsive actions. That's really the key here. Avoid impulsive buying. I have done this many times in my career and it has rarely ever worked well.
5. Find technical indicator that works well for you. Learn to love it. Study it. Understand why and what it does. It can be a handy tool to confirm your process or look for the conditions you want. On this chart I am having some fun with the open source script Moving Regression Prediction Bands. I like scripts like this because it's using statistical method to show price anomalies.
6. I also like using the Price Range tool to measure the percentage change in the dip. And compare it over time. I've listed three corrections on this chart. The key is to get a sense of where price has come from. Others might use fundamentals and wait for certain ratios to align, for example an attractive PE ratio or something like it. It’s up to you, but having a trusty tool can be of help.
7. Timing the markets is really hard. You can also view dips as a time to lower your cost basis in your favorite positions or as a potential way to swing trade. But once again, that's probably something you want to define *before* diving in.
8. The saying “Never risk money you can’t afford to lose” is especially true in dips and volatility. Additionally, if you are looking to buy a dip, there's no reason to buy all at once. Take your time. Wait... Wait...
9. Look at your account history and study your previous trades in similar times. Learn what's worked and what has not.
10. There are no easy answers to markets, but using the right tools and following some basic risk management principles can be of help. That's the key point to this post.
Hope you found it interesting. They are a few rules I have in mind. Please feel to share your own in the comments. Or even better, publish your own idea. I will try to do this again as well. There are some other topics I look forward to adding to this post.
I work at TradingView helping to build charts, tools, and software for everyone interested in financial markets.
Twitter: twitter.com/scheplick
Blog: scheplick.com/
Twitter: twitter.com/scheplick
Blog: scheplick.com/