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Trading Lessons

When Should You Buy The Dip?

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Written by Timothy Sykes
Updated 3/10/2023 5 min read

“Professional” financial advisors will tell you to buy stocks when they’re on sale.

However, if you followed that advice last week trying to buy regional bank stocks, you would have gotten slaughtered.

When you see a stock down 50-60% in SVB Financial Group (SIVB) in a single day, you’re probably thinking, it’s got to bounce, right?

The stock opened last Monday at $284.

By Friday, it was halted at $39.49.

Many other regional banks sold off hard as contagion spread throughout the regional banking sector.

Dip buying is a strategy I LOVE and one I teach my students.

However, there’s a right and wrong way to do it.

Pick the right way, and you can potentially bring in quick profits.

Choose the wrong way, and your account will be wiped out.

How do I do it?


The Psychology of Dipping Buying

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There are two different types of dip buys. One I prefer and the other I avoid.

Allow me to explain.

Last week’s bloodbath in regional banking stocks looked like a dip buying opportunity to newbie traders, but I wasn’t fooled.

In fact, before this even happened, I warned my students to avoid Silvergate Capital (SI).

You see, when there is a major catalyst event like the one we had last week, the charts get thrown out the window.

Fundamentals drive the moves. But when the selling picks up… traders are selling first and asking questions later.

You have no edge in trading these stocks unless you know the bank’s assets, liabilities, and balance sheet.

Newbie traders get sucked into the dumb idea: It’s down…it can’t go down much lower. 

So they buy the stock…then it dips lower…they’re in disbelief…but instead of cutting their losses…they buy more… thinking the bleeding has to stop.

And that’s exactly how you can blow up your account.

You have no real reason for buying except that the stock is down, and when it drops more, your emotions come into play, and you get wrecked.

This type of dip buying is an absolute disaster and should be avoided.

Dip Buying The Right Way

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One of my favorite setups is the panic dip buy.

I teach it to all my students. 

But when I’m buying a stock on a dip, it’s not weak stocks with negative catalysts.

Instead, I focus on buying stocks with positive momentum and strong catalysts.

And while I call it the panic dip buy, it’s not because traders fear that the company is fundamentally wrong.

It’s that they chased the stock, usually out of FOMO, and are tapping out because they got in at bad prices.

I’m usually interested in buying the dip when I see that type of action because I believe it can snap back fairly quickly.

CLNV chart 1-minute candles 

Source: StocksToTrade

Here’s another example:

ABML chart 1-minute candles 

Source: StocksToTrade *Risked $6,000 to profit $675

And another one in the same symbol:

Source: StocksToTrade

Just like a great poker player plays his opponent, not the hand…I am trying to take advantage of other traders’ mistakes.

Whereas what we saw in the regional banks was fundamentally driven.

In that case, you’re trying to catch a falling knife.

That’s very dangerous and super risky.

On the other hand, I have no problem buying stocks on a strong uptrend with positive momentum on a dip.

At the end of the day, one of the few things we can control is our risk.

Next time you see a stock crashing down, ask yourself why that is, and if there’s an opportunity or not.

Sometimes the best play is to stay away.

If you’d like to learn more about how I play the markets and how I’ve helped 32 of my students become millionaire traders, then click here to find out more


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Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”