Buy the Dip Trading Strategy: Rules, Backtest and Examples

Market crashes and recessions can be opportunities for long-term investors to buy assets at bargain prices. Market participants call the approach “buying the dip.” But what does it mean to buy the dip?

To buy the dip means to purchase an asset when its price has dropped so that the asset is bought at a bargain price. It is an investment approach that follows the basic principle of “buy low, sell high,” but in this case, the focus is on the buying aspect. The concept of buying the dip is based on the belief that the “dip” is only a short-term price decline and the asset, would likely bounce back and increase in value with time.

In this post, we take a look at the buy the dip strategy and how investors use it in various assets. At the end of the article, we make a backtested buy the dip trading strategy.