Pure traders love to buy the dips – and of course sell the rips. Everyone wants to buy low and sell high. Is this part of your strategy? Do you know when and how to make that your plan? Today’s Stock Exchange will help. As a bonus, we have some interesting ideas to explore.
Review
Our last Stock Exchange discussed how to distinguish between trading skill and blind luck. The analysis included a description of important elements in model development along with some great sources. As always, the group found some interesting ideas.
Today’s Theme
Buying the dips is prominently featured on the list of trader maxims. It seems so obvious. A stock that you like hits a downdraft. A buying opportunity? Or will this dip beget another dip? Standard instructional sources (Investopedia) make only general comments.
Our regular experts include only one with a dip-buying strategy. For that reason, Holmes gets the spotlight this week, but we have some good ideas from everyone. As usual, I will conclude with a brief observation about the key points.
This Week—How to Buy the Dips
Holmes
I look for stocks that have declined, seem to have bottomed, and are starting to find legs. Once I have a winner, I must then decide when to sell. I also have position size limits, sticking with the best 16 candidates. This week provides a good illustration of my process. I really liked Nielson (NLSN), which I bought at 42.30. There might be more room to run, but I sold it at 44.54.
J: Welcome back from Mexico. Did you have any trouble at the border?
H: No. I do not fit the profile they are looking forJ
J: It is good to have you back. So why sell NLSN if you still like it?
H: My method is aggressive in taking profits. Notice how the price recovered from the bottom to the point of the initial decline.
J: Most dip buyers would not notice that. They might be looking for a full recovery.
H: A 5% move in a few days is great for a trading program. I also have limits on position size (6%) and number of positions (16). There are often candidates that I like more than my current holdings.
