Buying the dip (and its risks)
Risk awareness · Difficulty: Intermediate
The idea
Buying after a fall hoping for a bounce is popular, but a dip can be the start of a bigger decline. A rule-based version buys dips only in a rising trend and defines the exit before entry.
Indicators and settings
SMA 20, EMA 50 and RSI 14.
Entry rule
Only in an uptrend (price above a rising 50 EMA): consider a small starter position when RSI falls near 30-40 and price steadies at a prior support level. Add only after a bounce is confirmed.
Exit rule
Take profit into the previous high or at RSI 60 to 70. Exit all if price closes below the 50 EMA or your stop.
Stop-loss and risk rule
Never average down without a plan. Fix the stop in advance and keep the loss at 1% or less of the account.
Best conditions
Healthy uptrends with orderly dips.
Pitfalls
- 'Catching a falling knife' in a downtrend.
- Adding to losers turns a small loss into a large one.
- Strong news-driven falls often continue.
Try it on the desk → Position-size calculator All strategies
Illustration only; ignores slippage, tax and most costs. Not financial advice.