Buy the Dips

A strategy in which the investor or trader buys a stock when it falls in price. Buying a dip may be a good idea as some fluctuations in the stock market are irrational, and therefore present a good opportunity to buy more of a “good thing” at a lower price. However, a business’s fundamentals may be a in long term decline and the stock price may never recover.

Buying the dips is a very popular strategy in bull markets. Typically bull markets correct a few times and then resume the uptrend, strengthening the conviction of investors that the bull market is strong. Such a belief would cause investors to assume that the next correction is only temporary and is a good time to buy anticipating rising prices later on. However, if a bear market commences, this can lead to heavy losses.

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