Buying the dip – the definitive guide

Buying the dip.

This is something I’ve talked about before, and it’s something which can bring you a fuck ton of money if done right.

It’s why millionaires are made in recessions and why a lot of traders love crashes and dips.

And while dips represent opportunity, buying in needs to be done right. If not, you can leave a lot of money on the table or even get burnt.

So here are my tips for buying into market dips:

Timing is everything

They say you can’t predict the market. That’s wrong

The market is easy to predict. It will go up. It will go down. It will go back up.

It’s more accurate to say that you can’t time the market.

If we look at this graph, I’ve circled 3 entry points: A, B and C

While all three would be good entry points and you would be buying the dip, point B is much better than the other 2.

To time it right, you need to understand the dip from a market point of view. Why have these players dropped in price? Is it because they have lost inherent value?

In the case of the current state of market, we can say that the dip is mainly due to lack of liquidity in the platform, negative sentiment towards it and people withdrawing due to personal financial issues.

People sold because the negativity and market flaw stated above outweighed the perceived value of players.

The market will therefore bounce back when the perceived value of the assets outweigh this.

There might be factors to think about which affect this. For example the international break may delay traders buying back in. Rules around commission which comes into play on the 16th may tighten spreads, sparking buying.

Or traders may ignore all this and decide the value is too good to wait.

The better you are being able to use this information and predict when the rise happens? The better a trader you are.

Luckily there was a similar market dip recently which can give you ideas about when the market can bounce back.

For example, one big indicator for me was when the bottom bids for players stopped being matched. That for me meant that the market was starting to bottom out and players started to rise not long after.

Have a strategy

You should always have a trading strategy, and whether you’re trading long term or short. Buying the dips is often a great way of making money that goes well with your strategy.

When buying these dips, you do need to have a plan in place.

Embed from Getty Images

It’s important to know that even though there are huge potential upsides, you could stand to lose money.

If you time it wrong and the market is still yet to bottom, you’re going to have to stomach some losses.

As a rule for me, I would never invest any money that I may need in the next two month at least into buying the dip. There’s no guarantee that I will get it all back by then if the market hasn’t bounced back by then.

Another rule I would recommend is having exit plans.

Exit plans when players rise might mean keeping the player for three years, or selling once they reach a certain price.

You should plans for if they don’t rise – If you buy a £5 player and they fall instead of rise. Having a rule that says you’ll sell if they hit £4.50 is an exit plan. It will prevent you making bigger losses and means you don’t have to make on the spot decisions.

You can always buy back in later on.

Choose who to buy

Although not quite as important as when to buy, who you buy is still a very important decision to make.

The majority of players will rise again, but some will rise more than other.

Those players who’s price has been affected most by the drop are those that have had some sort of negative sentiment just before.

Mbappe and Neymar had big dropped more than most due to injuries. Dybala has been underwhelming and his price took a big hit. Sancho was once of the biggest drops and most of this is likely due to traders seeing that he hasn’t returned divs anytime recently and deciding that he was one player to get rid off.

On the other hand, players like Joshua Kimmich who has been in outstanding form just before has had hardly dropped in price.

Similarly, those who will rise the most will usually have a positive sentiment when the rises take place. After the previous dip, Rashford was one of the big risers because of his involvement in the news.

This may not be easy to pin down, so I recommend buying based on value instead which will always serve you well.

Identify players who’ve still retained their value, but have dropped in price.

Think of it like buying a jacket. Don’t buy one for the sole reason that it is cheaper than it was before. Buy one that you think is at a price that is less than what you value it.

Low price doesn’t always mean good value. Good value means good value.

Its your job to identify it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s