Let’s talk about buying the dip. The “buy the dip” strategy has been extremely popular for the last what, year and a half? In fact, for the past few years, people have been saying buying the dip is a strategy that just works.
They say it’s pretty easy, right? All you have to do is wait until the markets dip or a stock dips, and then you start buying it and everything will be fine. But when do you know how to do this?
in this article, I want to show you exactly what the “buy the dip strategy” is. We’ll talk about how to use this strategy. We will show you the pros and cons of this strategy, and I’ll give you several examples.
I also want to talk about why they have been lying to you about this strategy that supposedly is the easiest strategy in the world, right?
When Buying The Dip Works
So let’s jump right on the chart so that I can show you a few examples. Now, one of the examples that many people use here when talking about “buying the dip strategy” is Microsoft.
Here we’re looking at it on a weekly chart.
Now we can see what has been happening since 2017. It has just been going up.
The idea here is, as soon as Microsoft dips a little bit that you start buying it. Then it just keeps going higher.
The idea is to buy stocks at a discount.
Now, if we take a look at a daily chart, we see what has been happening thus far in 2021. This strategy on a stock like Microsoft has been a really great strategy.
We’re just buying the dip, it goes higher, buying the dip, it goes higher. It’s a foolproof strategy, right? I mean, everybody can make money with this strategy.
Another stock that people who like this buy the dip strategy often use is Google.
If we’re looking back at the past few years, Google has moved from $800 to $2,900. This is where most people say just buy the dip and you’ll be fine.
So as soon as Google starts retracing, we will be good. These are two examples that are perfect for this strategy.
Challenges When Buying The Dip
But what about some other popular stocks like, for example, Tesla?
If we take a look at Tesla, and we look at what happened here this year, at first it seems that it can only go up, right?
Tesla went from what, $100-1,200 in a matter of only two years. So, yeah, buying the dip seemed to make a lot of sense.
But you see, here’s one of the challenges. What if you saw that Tesla has been trading at around $900 and then it started dipping back to $800? And you bought it at $800 but then this was not the dip.
The dip was going further down to around $600. So at first, you are underwater. Now again with Tesla, no big deal. It only lasted for a few months and then you were right back up.
Looking at a daily chart, we see we are going from $900 to $600. But then within a matter of months, we are jumping right back. So apparently this is also a very good strategy.
However, here is one of the challenges. The challenge is that during this time, while it is recovering, you’re not making any money. So this buying the dip causes you to have some dead money in the market for quite a while.
And you see, even popular stocks like Apple here are not immune.
Apple has been going from what? Now split adjusted because Apple had a split off around $20 to $160. That’s 800% which is kind of crazy.
If we are looking at this year on a daily chart, then you see this year we started with $140. Apple went down as much as $120, were piddling around between $120 and $130, until finally cracking $150 and $160.
For this year, buying the dip strategy for Apple has not really worked out.
Now let me show you some extreme examples. One of the darlings of 2020 was Peloton, right? The bike with an iPad strapped to it. This is where it went from $20 to $170, and then you could have just bought the dip.
If you had bought the dip as soon as it dipped down, let’s say, from $180 to $140, then it dipped down to $120, to $100, came back up, and is now trading at $40.
Buying the dip would not have worked out here.
Let me show you another example, Zoom. Zoom was another darling in 2020 during the pandemic because everybody was switching over to Zoom.
Zoom went from $80 to $600. That’s a 500 % increase. You would think nothing can go wrong here with Zoom, all we need to do is buy the dip.
But if you had done it here when it moved up to $180 and it dipped back to $140, you see what has happened. It’s now trading at $44 and you would sit at a huge big loss.
Now you might say, “Well, these are extremes, right?” I mean, this is Zoom and Peloton here.
Let’s talk about some more solid stocks like Walt Disney.
If you are looking at a weekly chart we see that Disney is a stock that has been moving higher, relatively stable. Recently it reached $200.
Then it started dipping to $190 and you think that’s a bargain and let’s buy this at $170-$180, but then you see right now it is trading at $148.
Why am I showing you these example when we are talking about the buy the dip strategy?
Well, this is where I’m kind of mad when I hear people say, “Oh my gosh, yeah, you just have to buy the dip. You will be just fine.” No, it doesn’t work this way. You need to know WHICH stocks are really worth buying the dip.
And even if you look at solid stocks like Disney, Tesla, or Apple, it can be that these stocks are going sideways for quite a while. This is why I say they have been lying to you. They say, “It is that easy. You just wait for retracement.”
Why I Trade Stocks Going Sideways
Let me show you some very specific examples of stocks that I am currently trading, where buying the dip is not as easy. I want to show you exactly how I am doing it.
One of the strategies that I like to trade is The Wheel Strategy. And the idea is that you are selling puts, and by doing so, you’re buying stocks at a discount.
This is where I like to make sure that this stock is going sideways or slightly up. Here you can see Boeing has been trading sideways pretty much for the whole year.
We already know the story about Boeing. Boeing is doing well, then there is news about planes that are not working and then it dips.
A few weeks afterwards, they say, “Oh, we fixed the problem.” Then the FAA says, “Yeah, you fixed the problem. It is all good.” And Boeing is right back up.
So this is one of the stocks where I have been selling puts and I’m okay getting assigned there.
Another one is ARGYF. The stocks that I like to trade are stocks that are sideways, not something like Microsoft or Google that is just shooting up.
For me, I prefer stocks like ARGYF, Boeing, & MRK. In fact I just recently took a trade on MRK.
Looking at a weekly chart, we see for how long MRK has been going sideways. So these are stocks that I like to trade.
If you’re interested in these two strategies that I use, and would like to see how you can possibly make 30%, 40%, 50% or more, here are 2 videos for you:
Long story short, what is it with buying this dip strategy? Yes, “they” who sell you this buying the dip strategy or say, “Oh yeah, it’s that easy. It has been working out all year.” They like to use major stocks like Microsoft or Google. Maybe they show you the indices like the S&P 500 or the Nasdaq.
Let’s take a look at this here really quick so that you see exactly what I mean by this.
If you look at the S&P 500 here, and we are looking at a weekly chart, you see, yes, buying the dip would have worked out. But as you can see, you can also get hurt very badly when you are picking the wrong stocks.
So whenever they tell you, “Oh yeah, trading stocks is easy,” no, it is not. Trading stocks and options can be simple, and this is what I like to show you. It doesn’t have to be complicated, but it is not as easy as taking candy from a kid.
By the way, what kind of saying is this? Have you ever tried to take candy from a kid? That is not easy at all! I mean, these kids are holding on to their candy.
Anyhow. Hope you find this helpful.