From what i have been seeing and what i discovered is that investors and traders always have this Mantra called "Buy the dips". Despite buying the dips you might still find yourself sinking in losses because you will be trading and buying what you are thinking and what you want putting a blind eye on what the market is offering. Before going further lets first see:
what it means to buy the dips?
Buying the dips happens when the price is falling and when traders assume that the price is now oversold and that is when they start buying the while the price is still down
In trading traders use terms like oversold, this is when the price has been selling hard and is now at the bottoms and overbought is when the price has been bullish for so long as is now at the peak level. I have a question though on this.
Do overbought and oversold exists?
Well it depends on how you approach the markets because we have different trading strategies e.g some use oscillator indicators to tell if the market is overbought or oversold but as for me as a price action trader who use order blocks, supply an demand zone i see overbought and oversold as just a myth because no price is too overbought that is why we always see new All Time Highs being set and broken.So just because you think that the price is oversold doesn't mean that its time to buy now.
If you check the picture above you can see that the guy bought dip and was smiling thinking that the price is now about to be bullish then he was hit in th head and the price broke below. He thought the price was now oversold and bought what he though were dips but now swimming in loss.
So do you approach dips and buy them to avoid this?
You should avoid just assuming and jumping is without proper confirmation. You should make sure that you are at an area of importance e.g a bullish order block maybe supported with a trend line. Then you wait for a rejection candle such as Doji, hammer or pin bar then a bullish confirmation and you better check these candles on a larger timeframe e.g M1, W1, D1 or H4 so that you only buy when it is confirmed that the price is going up for sure.
