BTFD

WHAT IS BTFD?

It stands for Buy The Fucking Dip!

Buy The Dip Theory

Two concepts that support buying stocks on dips are reversion to the mean and market sentiment. Reversion to the mean tends to apply to auction markets, especially when the price of assets and commodities is too high or low. All other things equal, outliers such as dips must revert back to the middle or average price.

Market sentiment is the notion that the price of assets is driven by emotion and fundamental value. Sometimes, market sentiment pushes prices to extremes before the prices revert to the mean. Both theories support what traders have been saying all along: buy the dip, sell the rally.

How to buy the dip properly

In a bull market, you would want to buy the dip! In an uptrend, a stock would occasionally find points of resistance where sellers would overwhelm buyers causing price to drop. At what point to you buy? You have buy after the stock pull backs from breakout. The pullback would have to have to be near or close to the breakout price without confirmation of the stock moving up. Buy directly when the stock hits your price point without waiting for confirmation. This is the metagame style of trading - buying when you think other buyers will buy ahead of you. There are multiple scenarios to this.

1.    Short sellers who previously shorted before the breakout happen but are still holding; they are hoping to that the stock would dip to their entry or get out with profit. But the stock doesn’t dip further and then price begins to rebound. Short sellers who are losing money would begin to cover their losses to buy the stock back.

2.    Traders who bought the breakout and sold into profits are looking for confirmations of rebound. When the confirmation displays itself then those traders would step in and buy pushing the stock to go higher.

3.    Traders who bought above breakout level but never sold are now selling into a loss at support zone; those same traders who realize they made a mistake after in hindsight would buy the stock after confirmation of the stock moving higher.

Buying without confirmation can lower your risk and have greater profit potential. Most importantly it puts you in a position where you can buy ahead of the other buyers. The majority of traders buy with confirmation because that is what they learn from most (fake) gurus teachings.