Glossary

‘Buy the dips’ is a phrase used in trading, referring to opening a trade on a market as soon as it experiences a short-term price fall. ‘The dip’ is quite literally a dip shown on a market’s chart when its price falls after a bullish period.

The idea is to buy a market when it retraces after a period of strong growth, and then profit if the uptrend resumes. For example, if Netflix’s stock is experiencing a long-term uptrend but then falls from $500 to $460, at this point the stock could be bought in the hope that the strong growth resumes.

In theory, the risk is lessened as the long-term trend is bullish, so in buying a stock during a dip the investor capitalises on entering the market at a lower cost.

There is no guarantee that the long-term market trend will continue, though. Sometimes ‘the dip’ will be the beginning of a prolonged downtrend, in which case investing at the lower price will still incur a loss.

How do you buy the dips in stocks? 

Buying the dip in stocks involves identifying listed companies that have seen their price fall in the short term after a long-running uptrend. You then buy them at their new lower price, hoping that the bull run will resume.

This may sound like a simple concept, but executing it successfully can sometimes be difficult. It’s not always obvious how quickly, if at all, a market will recover after experiencing a price dip.

It’s also common for investors to buy the dip on stocks that they already own to average out the total cost of their investment. However, if the market then suffers further losses, buying the dip would have only doubled down on the loss they will incur.

Buying the dip is especially popular with stocks. Many major stocks experience a long-term upwards trend over several years. Facebook, for example, saw its share price triple in five years.