The Fallacy of "Buying the Dips"

by Raghee Horner

With as much information (fundamentals, news, economic reports, financial television shows) that we are presented with each and every day it's hard not to listen, even just a little bit.

I have to admit, even I listen...it's often hard to ignore that part of our brain that says "maybe they know something I don't". Luckily, my better judgment wins in the end and I am able to trust my charts!

Lately, with the stock market selling off, there is much talk about "buying the dips". Maybe you've heard it. I know I have. And that's exactly why I wanted to write this today.

Some of you may be stocks and/or futures traders as well. Even though we focus on the forex market, the Three Steps can be applied to any market.

I'm not here to tell you that "buying the dips" is not effective. Here's when we can consider it:

When the Wave is traveling at between twelve and two o'clock we have an established uptrend. Remember, always rely on the Wave to let you know when there is a trend and what direction it is heading. Let's take a look at the Dow Jones Industrial Average:

Note that the Wave is currently heading down between four and six o'clock...this would mean that as long as the Wave continues downward at this angle, we will short the bounces not buy the dips!

In fact, note the four candles that touched the Wave before the dramatic drop of the last three trading sessions.  Each one of these bounces into the Wave was a shorting opportunity as the Wave traveled downward at the clock angle!

Finally, the psychological level of 10,000 is approaching.  This level will act as support as it is a widely watched level.