You cannot buy any dip.
As they say, “Don’t catch a falling knife” !
And it depends on various factors like technical analysis – trend pullback or reversal, fundamental analysis, short selling, time decay, time frame, how long you hold, news etc.
1) To begin with, this dip or crash will only affect short-term traders.
Investors are usually well-researched or have financial analysts on their side.
This will not be an issue for day traders. They will simply go with the flow. Likewise, scalpers.
Short-term investors and swing traders, on the other hand, are in the most trouble.
2) You must first analyse the fundamentals of a stock. If the company is in debt or its performance is worsening, you may want to reconsider your decision to buy the dip. Because the stock may never recover. It may continue to fall.
3) If there is any news about the stock, there may be an immediate reaction. Then it will be able to recover.
4) Institutional traders may have anticipated this and purchased it, resulting in a sharp drop when the news is released.
5) In some volatile markets, such as cryptocurrency, there can be frequent spikes or crashes. In that case, you should also know about technical matters.
6) It also depends on how long you hold the position. Short-term dips are nothing to worry about if you are a long-term investor. If you are a short-term trader, however, you should exit before you violate your risk management rule.
7) Time decay is another consideration. If you buy options and hold them, this dip will be your worst nightmare. When you see that the dip is going to continue, get out as soon as possible. Because you don’t want your price to fall due to time decay.
8) It is determined by the type of trade. Short or long. PE or CE? You have just hit the jackpot if you are short selling, buying a PE, or selling a CE. If not, you should think about exiting your trades.
What should I do?
When the market is crashing, first examine the company’s fundamentals.
Look at the news and especially if you are only trading an index. The market will be influenced by both local and global factors.
Then determine whether it is simply a large pullback or a trend reversal.
If everything points to a negative market, do not trade and exit your previous positions.
However, if you want to profit from this crash, you can use futures and options to go with the flow or do intraday short selling.
How do I buy at the cheapest price?
If you want to buy the stock at the lowest possible price, consider all of the above factors and ensure they are no longer a factor.
When the price begins to rise, do not buy it right away.
Wait for the previous downtrend pullback to be broken. Then, after a pullback, enter.
If all other factors remain constant, this would be the cheapest price possible.