What does "buy the dip" mean?
In one line: "Buy the dip" means buying after a price has dropped for a while, expecting it to recover and keep rising.
What it means
"Buy the dip" means: when price drops, buy it cheaper. The idea is that the drop is a short pause and the rise will carry on.
People shout "BTD" when a market falls after a long climb.
Where it comes from
The phrase is widely used on Wall Street and in finance media. Its exact origin is unclear. It became a common battle cry during the long US stock rally after 2009.
The real lesson
There's a real idea under the slogan. In an uptrend, price doesn't rise in a straight line. It climbs, dips, then climbs again. Each dip is a Pullback.
A healthy uptrend makes higher highs and higher lows. Each dip stops above the last dip. Buying a pullback in that kind of chart means trading with the Trend, not against it. See higher highs and higher lows.
The trap inside it
"Buy the dip" doesn't say which dips. And not every drop is a dip.
Sometimes the drop is the start of a downtrend. Then buying it is Catching a falling knife. A sign: price falls below the last low point, and a candle body closes there. The uptrend's structure is broken.
A dip is a drop inside an uptrend. A drop that breaks the last low may not be a dip at all.
A simple example
A stock climbs: $40 → $50, dips to $45, climbs to $55.
- It now dips to $50. That's above the last low of $45. The uptrend is still intact. A planned buy here could put the stop just under $45.
- Now picture it falling to $43 and closing there. That's below $45. The pattern of higher lows is broken. "Buy the dip" here would mean buying a market that just changed character.
Illustration only. Even the first case can fail, which is why the stop comes first. Work out your size with the position size calculator.
Better habits than the slogan
- Check the bigger chart first. Is it really an uptrend?
- Wait for a candle body to close back in your favor before acting.
- Set your stop past the last low, and size from it.
Our pullback trading strategy guide shows the full set of rules.
Questions
Is buying the dip a good strategy?
It can fit when the bigger trend is up and the dip holds above the last low. It fails when the "dip" is really the start of a downtrend.
How do you know when to buy the dip?
Many traders wait for the drop to stop above the last low point and for a candle to close back up, with a stop placed just below that low.
What does BTD mean?
BTD is short for "buy the dip," a common chat shorthand when prices fall.
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