Why You Need to Buy on the Dip

by | Nov 29, 2021

I have two important lessons that can help keep you safe while trading…

  • Buy on a dip
  • Never chase

For those of you acquainted with Reddit traders’ rally cries, I don’t mean “buy the dip” the same way. 

Don’t buy every dip of a stock in hopes it goes higher. That’s gambling.

Gambling will blow up your account. I’ve seen it happen too many times.

Let me show you what I mean. Keep reading for a great example… 

Recent Runner LGVN

I thought I’d use this spiker for some visual learning. Let’s take a look at a five-day chart of Longeveron Inc. (NASDAQ: LGVN). The catalyst was FDA approval for an infant heart condition treatment.

LGVN chart 5-day, 10-minute candles (Source: StocksToTrade.com)

This chart shows just how volatile holiday trading can be. At the time I’m writing this, it’s moved from $3 to $40 in three days. That’s outstanding.

I heard a lot of different plans on how to trade this. Some good and some not so good. I’d like to illustrate why buying on the dip is so important in this market.

The Initial Spike

On November 18, when the news came out, it ran from $3 to $8. Already over 160%!

I heard a lot of newbies talking about swinging it overnight. Not a bad idea… 

  • First green day
  • Holiday market
  • News with legs
  • Huge volume
  • Low float
  • Held up but didn’t break out into the close

There’s a lot of things to like there. But your entry is key.

If you buy too soon, you could get scared out before the gap-up. Or maybe the gap-up never comes and you’re bag-holding the next morning.

I know it’s exciting to watch some of these spikers, but you must wait for the best possible setup. Sykes always teaches to have the mindset of a retired trader. Only come out of retirement if there’s a play SO good that you just can’t miss it.

Check out the chart below. People got really excited to buy it around 3:30 p.m. Eastern. But that would be buying at highs. My suggestion is to fight the FOMO and wait.

See how it started to come down toward support at $6 after failing $8? I’d much rather buy that dip into the close. Then if the stock starts to fail in the morning, I know I’ve got some protection at $6.

LVGN chart 2-days, 1-minute candles (Source: StocksToTrade.com)

We can see from the chart that it gapped up to $12 and ran to $14. But hypothetically, what if it failed?

You’d have to sit through a pretty spooky market close if you bought at $8. Even in after-hours, you can see the price tested the $6 level again. Save yourself the stress and buy on a dip.

The Big Move

The biggest move was on November 22 from $8–$28. That’s a 250% spike.

The most concerning part of this move? I heard a newbie’s plan to swing it overnight.

The pattern was completely different here from just two days earlier. See how it broke out over $20 at around 3:20 p.m.? If you buy it after the breakout, you’re chasing.

LGVN chart 2-days, 1-minute candles (Source: StocksToTrade.com)

Even if you bought at the little consolidation above $20, look at what happened the next morning.

You’d be lucky to get out for break-even.

You could have sold for a gain in the after hours. But I don’t trade premarket or after hours, that may be what makes us different. That’s ok. I just don’t trust the price action as much.

And I also like to enjoy my life outside of the market. You’ve gotta know when to work and when to live.

Final Thoughts

Start taking notes if you haven’t already. Fill up your notebook with anything that sticks out to you.

Write down what makes sense and what you have questions about. Actually, that reminds me…

The market is probably about to get pretty hot. I’ll be pretty busy. I want to make sure I’m covering helpful topics for YOU.

Send me an email and let me know what helps you learn. I’ll include your response in a letter and make sure to deliver as best I can. Just click the button below.

Here’s My Trading Question, Roland

Make sure you’re watching the market! We’ve already seen a few runners start to take off. Use this time wisely.

Learn from the volatility,

Roland Wolf

Editor, The Wolf’s Den

About Roland

Originally from Arizona, Roland started trading after a career-ending ankle injury forced him to quit pro soccer. After a few years of hard work, he managed to turn $4,000 into over $1.2 million.

Recent Tweets

Recent Posts

How To Make $3000 In A Bear Market

Welcome back to the Wolf’s Den, Last month I gave props to Brandon Hanna. A student that recently passed the $100,000 milestone. Here’s...

This Pattern Won’t Quit

Happy Monday! Welcome back to the Wolf’s Den, To profit this week, we’ve gotta play the right patterns. Patterns that repeat over and over...

The New IPO Everyone’s Watching

Welcome back to the Wolf’s Den, There’s no time to waste! Remember the massive +19,000% spike on AMTD Digital Inc. (NYSE: HKD)? It started...