What is Buy the Dip?

'Buy the Dip' is an investment strategy where investors purchase securities after their prices have fallen temporarily.

'Buy the Dip' involves buying assets at reduced prices during short-term declines with expectations of future price recovery.

You don't — that's the honest answer. Dip buyers try to identify oversold conditions using RSI below 30, support levels, or simply a percentage drop from recent highs (e.g., 10%, 20%). The problem: every major crash starts as a 'dip.' Buying systematically (e.g., every time something drops 10%) works better than trying to time the perfect bottom.

For broad market index funds, buying dips has historically worked because markets trend upward long-term. A 2020 study showed that buying on any dip of 5%+ in the S&P 500 outperformed lump-sum investing about 40% of the time. The other 60%, you were better off just buying immediately. For individual stocks, results vary wildly.

The main risk is catching a falling knife — buying an asset that continues to decline far beyond your entry point. Other risks: timing the wrong bottom, deploying capital too early and missing a better entry, and confirmation bias (convincing yourself every dip in your favorite stock is a buying opportunity rather than a warning sign).