Trading term
What is Buy the dip?
Buying the dip means buying after the market has fallen, usually a set percentage below its last high, in the hope of a cheaper entry.
It mixes two ideas. One is that a fall is a good time to buy. The other is that it's worth holding cash until a fall comes.
The first holds up. Since 1928 the S&P 500 has had 26 drops of 10% or more from an all-time high, and buying at the first 10% close left you up a year later 17 times, about the same rate as any other day. The second doesn't. Waiting for a 10% dip from a high meant paying more than the price you passed up 55% of the time.
For example
A saver who held cash until the S&P 500 was 10% below its high lost to one who bought every month in 85% of 20-year stretches since 1927.
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A dip doesn't tell you where the fall stops. 12 of the 26 drops went on to 20% or more, and the median dip buy fell another 10% before the low.
⚠ Sitting in cash waiting for it
Big drops are rare and the high keeps rising while you wait. Even buying at the exact bottom of every 10%+ drop beat buying every month in under half of 20-year stretches.