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Category: Glint's Helpful HInts

Glint’s Helpful Hints: Buying the dip

'Buying the dip' is a traders' catchphrase which refers to buying an asset when it has dropped in price, in the belief/hope that it will soon rise aga...

5 May 2022

Gary Mead

‘Buying the dip’ is a traders’ catchphrase which refers to buying an asset when it has dropped in price, in the belief/hope that it will soon rise again, and a profit can result.

As a trading strategy, it requires nerves of steel and ideally a crystal ball – who knows if the ‘dip’ in value may not have further to go? It’s an attempt to time the movement in markets, and that can be a very risky business.

In the Great Depression, the US stock market boomed and broke in 1929-32, losing 89.2% of its value from its peak on3 September 1929 to its trough on 8 July 1932. On ‘Black Thursday’ – 24 October 1929 – the US stock market opened 11% lower than the previous day’s close. Investors sensed this was a classic ‘dip’ and a perfect buying opportunity, and some bought stocks.

But it was a false dawn – not so much a ‘dip’ as a long-term immersion – on the following Monday the Dow Jones Industrial Average (DJIA) closed down 13%, and the day after it closed 12% lower. The DJIA did not recover its previous peak (of 381.17) until November 1954. On Wednesday week the DJIA closed almost 3% higher, at more than 34,000.

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