Is ‘Buying on Dip’ or ‘Average Out’ a good idea?
Many of you are already trading in the stock market and earning handsome profits. Wait!! What? Are you not making a good profit every day or at least monthly? Then, you need a good trainer to teach candlestick patterns, chart patterns, trade setups, various tools, and many more things. You can look around for trainers, list them all, get reviews from friends or family circles, and select the best one. Also, select the appropriate courses they offer. Keep in mind your requirements and the cost while selecting the trainers. You will learn why training is essential as we progress in this blog. We will discuss the most open and wide-ranging advice of all the ‘so-called’ investors/traders: ‘Buy on dip’ or ‘Average Out’ They also advise, ‘buy on every dip’. But does this advice work? Let’s find out with appropriate examples. Stocks are not your Fiancée or spouse Firstly, you should not encounter such a problem where your stocks go down. Wait!! What do I mean by that? Let’s understand this. There is something called a stop loss or book-the-profit/loss. So, once the stock starts to go down, exit if there is a profit or minor loss. Don’t be emotionally handicapped. Learn when to exit and how to identify and apply stop loss levels with the help of the training or registered advisors. Be strict with your investment decisions. Take command of them. Ride them. Even I made losses by not following the same. Stock is not your fiancée or spouse. Do not feel emotional about the stocks you must leave for some reason. The market is ruthless; it will not be emotional about your losses, and the company you are investing in will not feed you for your entire life unless you have a significant quantity and pay handsome dividends. You can buy the same stock at a cheaper level sometime in future. But when? Let’s dive into the knowledge pool ahead. But let’s say you still haven’t left the stock. You can try to follow the idea below. Buying on dip or Average Out As mentioned above, the widely used advice in the market is to buy on the dip or average out the stock prices. This means buying the stock at discounted prices so that the average cost is lower than when you initially bought it. But we often forget that the average price will always exceed the last buy price. This is done in either of the two ways below– Some of you may even argue that we cannot predict a stock’s bottom ever, and so a good stock must be averaged out. Let’s discuss this as well in the end. Read it through carefully. Some may argue that they are long-term investors and see no problem but only an opportunity to add stocks and hold them longer. Let’s examine it by trying to find the answers to the below questionnaire. What’s the correct approach? When you search for the answer to the above question, ‘What’s the correct approach?’, you will realise the need for training or guidance. Because there is a lot of material available on the internet, it may confuse you further and cause you to make incorrect decisions. Let me explain with an example and chart of one of the stocks. Though I am not a trainer or a registered adviser, I will still attempt to disqualify the thoughts of ‘Buy on dips’ or ‘average out’. Please see the chart below – Courtesy Trading View (Free Version) – Thanks for that. Now see the revised/updated/upgraded/trained thought – Please see the chart below – Courtesy Trading View (Free Version), Thanks for that. Let me know your thoughts in the comment section below, but before that, please have some answers to your common questions. Q – How would you know the stock has bottomed out? A – Looking at the significant supports, candles, chart patterns, reversal chart patterns, tools, etc., you can find that they are near the bottom of the trend. As mentioned at the beginning, a good trainer will help you gain all this knowledge, confidence, and eligibility to determine the bottom/near bottom of the stock trend and reversal from that point. In the above chart, there is a reversal chart pattern called ‘inverted Head and shoulder’. This clearly indicates that the stock is near the bottom and that a reversal is possible. Q – How would you know if the stock has topped and a possible downtrend has begun? A – I will give you the same answer as the abovementioned one. Q – What if suddenly stock retraced back from the rally? What will happen to our investment? A – The answer lies in the chart pattern, stock news, and tools to analyse the charts. Again, training and practice will help you. Also, a stop-loss order will always trigger if such sudden things happen, provided you have set it. Remember, taking some loss or less profit is better than losing significant capital. You always have another chance to check for bottom out and reinvest in the same stock. From the example above (Reliance Industries), is it better to lose some 2000 to 5000 in stop loss than losing 15000 to 20,000 in total capital? Comment in the comment box below. Conclusion Remember, no strategy works 100% in the stock market, but we still invest and try to earn. Then why not try to earn or limit the risk using the tools taught in the proper training and guidance? Do you now think buying on a dip or averaging out is good? If you still want to do it your way, then at least hedge your investment. Now, how to do that, again, is a separate topic for discussion and subject to training. Never underestimate the power of candlestick patterns, chart patterns, rallies, and downtrends, as well as the tools and training for such chart analysis. I hope you gained some knowledge from this blog. Investment in stock, bonds, commodities, mutual funds,
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