Author: Chris Flores, Founder | March 17, 2025
"Buy the dip!" You've heard it everywhere from finance TikTok to Reddit forums to that one friend who just discovered options trading. It's practically a religion in bull markets.
But here's the uncomfortable truth: Most traders who "buy the dip" end up losing money.
I know because I've been there buying what I thought was a dip, only to watch the asset continue plummeting until my position was down 50%, 70%, or worse. That experience inspired our best-selling shirt and the name of this company.
Let's explore why "buying the dip" so often fails, and how to transform it from a gambling mantra into an actual strategy.
The Three Deadly Dip-Buying Mistakes
1. Confusing a Dip with a Trend Change
The first thing most beginners get wrong is failing to distinguish between a temporary pullback and a fundamental shift in trend.
Real example: In early 2022, many crypto enthusiasts kept "buying the dip" all the way down, not realizing they were catching falling knives in a new bear market. What started as "BTC is on sale at $60K!" became "Great value at $40K!" then "Absolute steal at $20K!"—all the way to painful losses.
The lesson: A dip is a temporary retracement within an existing uptrend not just any price decrease.
2. Having No Predetermined Risk Level
The second fatal mistake is entering a dip without knowing where you'll exit if you're wrong.
Real example: My most painful trade ever started with buying a semiconductor stock "on discount" after a 15% drop. With no stop loss in place, I watched it fall another 40%, constantly telling myself it would recover "any day now." It eventually did eight months later, after I had panic-sold at the bottom.
The lesson: Every dip buy needs a clear invalidation point. If you can't define where you're wrong, you shouldn't make the trade.
3. Improper Position Sizing
The third error comes from the emotional aspect of dip buying the fear of missing out on a bargain often leads to oversized positions.
Real example: After making some successful trades in 2020, I spotted what looked like a perfect dip in a growth stock. Convinced it was "free money," I allocated 30% of my portfolio instead of my usual 5%. When the stock continued dropping, my outsized position created unbearable psychological pressure, leading to an emotional exit at the worst possible time.
The lesson: Dips come with higher uncertainty. Position size should reflect this increased risk, not ignore it.
How to Buy Dips Like a Professional
Now that we know what not to do, here's my framework for buying dips that actually works:
1. Confirm the Primary Trend First
Never buy a dip in a downtrend. I use the following checklist before considering any dip purchase:
- Price is above its 200-day moving average
- The 50-day moving average is above the 200-day
- Higher highs and higher lows are still intact on the daily chart
- Sector/industry group is also in an uptrend
2. Look for Signs of Support
I wait for evidence that buyers are stepping in, such as:
- A hammer or bullish engulfing candlestick pattern
- Volume increasing as price stabilizes
- RSI divergence (price makes lower low while RSI makes higher low)
- Support at a key moving average or previous resistance level
3. Define Your Risk Before Entering
I always determine exactly where my thesis is invalidated:
- For technical dips, my stop is typically just below the most recent significant low
- I calculate position size based on my maximum acceptable loss (no more than 1-2% of total portfolio)
- I write down my exit point before entering the trade
4. Use a Scaled Entry Approach
Instead of going all-in at once:
- I divide my intended position into 3-4 parts
- I enter the first portion when initial support is shown
- Additional portions are added if the position moves favorably
- This approach reduces the impact of being early
5. Focus on Quality Over Discount Size
Not all dips are created equal:
- I prioritize strong companies/assets experiencing temporary weakness
- I avoid "catching falling knives" with deteriorating fundamentals
- A quality asset down 10% is usually better than a poor one down 30%
A Real Trading Example
Last quarter, I spotted one of my favorite tech companies pulling back after strong earnings. Here's how I applied my dip-buying framework:
- Trend confirmation: Stock was in a clear uptrend, above both 50 and 200-day MAs.
- Support identification: Price pulled back to the 21-day EMA, formed a hammer candle on above-average volume.
- Risk definition: Set stop loss 2% below the hammer's low.
- Scaled entry: Entered 1/3 position after the hammer confirmed, added second 1/3 after it cleared the previous day's high, final 1/3 when it reclaimed its 10-day MA.
- Quality focus: Company had beat earnings and raised guidance the dip was technical, not fundamental.
The result? A 17% gain over the next three weeks as the stock resumed its uptrend.
The Psychology of Successful Dip Buying
Beyond the technical aspects, mastering dip buying requires psychological discipline:
- Accept that you'll rarely buy the exact bottom
- Be prepared for additional short-term downside after entry
- Understand that some dip buys will fail that's why position sizing matters
- Remove emotions by planning your trade completely before execution
From Meme to Methodology
"Buy the dip" doesn't have to be just a meme or a path to losses. With proper analysis, risk management, and psychological preparation, it can become a powerful addition to your trading arsenal.
Our "I Bought The Dip" shirt started as self-deprecating humor after painful lessons, but it's evolved into something more a reminder that with the right approach, even the concepts that hurt us as beginners can become profitable tools as we mature as traders.
For those interested in more detailed entry and exit strategies for dip buying across different market conditions, our Trading Blueprint includes complete frameworks for pullback trades in various asset classes.
What are your experiences with buying the dip? Share your best wins or most painful lessons in the comments.
—Chris