1. Buy the Dip

Buy The Dip is a term that refers to buying a stock after a market or stock has had a sharp decline in price. After making a significant difference, the price of a securities or a large discounted security index with a valuation becomes attractive, and investors should increase their buying of different stocks. Assembly buys at the bottom.

Buy the Dip in the stock market

Buy the Dip is done when there is a sudden drop in price and after that, the market tends to recover in the short term.

Buy the Dip is completely different from Flash Crash. Flash Crash is an issue where the exchange rate plummeted in just a few minutes and then recovered immediately. With Buy the Dip, after a sharp drop, the start of a recovery process, this process can be fast or slow depending entirely on the market.

Buy the Dip and Flash Crash

When does dip happen?

When the market has unfavorable information, the stock price or index is immediately sold strongly and pushed back to a low price. Especially in this downtrend, the stock price or the index fell quickly and strongly in a very short time.

While many other variables have a greater influence on stocks or indices such as firm profits, macro factors, and policies that do not change too much, a decline in stock prices creates opportunities.

However, buying at the bottom (Buy the Dip) has certain risks due to the fact that it is difficult to determine a specific bottom. So this strategy should be accompanied by other plans that investors need to build in parallel.

For example: At dawn on January 2, 2019, Apple announced its expectation that iPhone sales in the fourth quarter of 2018 would drop from $ 89-93 billion to $ 84 billion, causing Apple - AAPL shares to jump the gap, decreased significantly. Soon after, AAPL recovered.

When did DIP happen?

Right in the morning of the same day, the JPY encountered a Flash Crash that rocked the currency market:

JPY Flash Crash 2019

So DIP is completely different from Flash Crash. Flash Crash is a spike for a few minutes and then recovers immediately, while a DIP can recover in the short term.

The market sentiment behind Buy the dip action

Here are two concepts to note: market sentiment and value. An excessive worry of investors or the market pushed securities prices below their value dramatically. According to this theory, the price will have to return to the center (the valuation area) before continuing to increase when the sentiment stabilizes. This theory is simple but quite similar to the famous quote of Warren Buffett "greed when the market is afraid".

2. Sell the Rally

Sell ​​the Rally (rallies) is a term that if you search crushed on Google, there is also no answer to one of the two following questions: What is Sell the Rally (rallies)? or What is Sell the Rally (rallies).

Sell ​​the Rally

In my opinion, Sell the Rally is the opposite of Buy the Dip. Means selling on top. Or when there is a boom in prices in a positive direction (the rate increases), there will be a decrease correcting immediately. And it's time to choose to Sell the Rally.

3. How to apply to Buy the Dip and Sell the Rally properly?

Above are the concepts of Buy the Dip and Sell the Rally. But if we look at it, we see that it is a very risky strategy because no one can know where the real bottom is and the top is the real top for DIP and Rally.

Method 1: Apply the correct Buy Bottom - Sell High strategy

With this method, you need to be very proficient at using Price Action signals.

Buy the Dip: recommend using only one of the three-strong reversal candlestick patterns: Bullish Engulfing, Hammer, Morning Star. It should be combined with Support - Resistance Zones, as well as suitable Fibonacci Extension levels.

Sell ​​the Rally: Apply only three strong reversal candlestick patterns: Bearish Engulfing, Shooting Star, Evening Star. And of course, choose to Sell the Rally in the Support - Resistance areas and the important Fibonacci Extension like 161.8 for example.

If you can combine Buy the Dip and Sell the Rally with strategies using RSI, MACD Divergence then it is one of the great strategies.

Method 2: Apply Buy the Dip and Sell the Rally in the trend

Buy the Dip in the trend:

Buying at the bottom is also very risky and risky. But buying at the bottom of an uptrend is more effective. And we need to redefine the appropriate DIP concept to reduce the risk.

As such, we will now define a DIP as the bottom of a rebound bearish rally in an uptrend and here we should combine it with the Trendline. My Trending trading method is very simple. Counting beats 1, 2, 3 determine the trendline and hit up at the 3rd and 4th, to the 5th and 6th, you can stand outside and wait for the Breakout signal and trade according to Breakout.

So DIP can happen at the 3rd or 4th Trendline touch like this:

Buy the Dip following the trend

In some cases, DIP in this area will coincide with an Overbought area on the RSI or Stochastic

Sell the rally to follow the trend

On the other side, we wouldn't Sell the Rally on top of an uptrend. The opposite is to Sell the Rally on top of a downtrend combined with a Trendline like this:

Sell the Rally to follow the trend

Trending is Friend: The trend is you, never forget this saying. And another suggestion for you is that in the Rallies areas defined above, it is very likely that RSI and Stochastic will be overbought signals.