Overview
Dip buying only makes sense when the larger trend is intact. The pullback must stop somewhere identifiable, otherwise it is just a downtrend.
How it works
Confirm the trend, wait for a pullback into a support area or moving average, and enter on evidence that sellers are finished.
Typical setup
- Higher highs and higher lows intact
- Pullback into support or a moving average
- Entry on a reversal signal
Advantages
- Better entry price than chasing
- Clear stop under the pullback low
Risks
- The trend may already be over
- Catching a genuine breakdown
Common mistakes
- Buying weakness with no trend
- Adding to a position as it keeps falling
Risk management notes
One entry, one stop. Averaging down converts a planned loss into an unplanned one.
This guide is educational. It is not a signal service, a recommendation, or a claim that this strategy is profitable. Trading involves substantial risk of loss.