How to manage the risk of buying the dips?
Dips in fundamentally good stocks are good buying opportunities. You may earn handsome returns in the long run if you are ready to take this risk. Buy the dip is a strategy usually adopted by long term investors.
But what if the price drop never goes back up again?
What if the company has experienced a shift in its underlying fundamentals and which caused the dip?
Then, you will have to suffer a great loss or might have to wait a long time for a comeback in the stock prices if the volatility continues for a long time.
Above all, seeing the stock in red is a psychological discomfort.
So my recommended strategy is buy when rebounding after the dip
Buy when rebounding after the dip
- Watch the dip diligently.
- Read and collect as much as updates on the stock.
- Analyse the patterns and trends.
- Recognize when there is a comeback from the fallen value and then jump in.
This is not same as buy a bounce strategy where in you are not looking for a dip due to some market corrections or so, but instead you are aiming stocks which fluctuates in a range mostly (For example, you found some stocks which varies in the range 100-110/- You buy it when it goes to 100 and sell high after a quick bounce as expected). And there you are quite sure of comeback as you are purchasing the stock at the support level only and not a dip or crash level.
For short term investments I go with “buy a bounce strategy” usually. But for a long term investment buy when rebounding after the dip and not at the dip. (So Are you a Trader or an Investor?)
Buy when rebounding after the dip means you are buying the stock after it has just escaped from the dip.
Advantages of buying when rebounding after the drip
- You won’t have the depressed waiting period of stock being in red
- Stock rebounds to its previous high very quickly
Say for Example Wipro, which seems to rebounding after the dip now
Wipro was at its low for a while. And have recently come out of the resistance at its low and started to show growing momentum.
Let’s take a closer look at it
Wipro Limited is a global information technology (IT) services provider. It operates through two segments: IT Services and IT Products.
Last month the stock price went down to 603.95. Thereafter it is slowly gaining momentum. Current market price is 670.8(Closing price as on 17th Nov 2021). At this moment, it would be a reasonable choice to buy. Anyway it has gone up by 1%. So comparatively less chance to come down again.
Moreover Wipro has announced an acquisition plan.
Wipro announced on Wednesday that it signed an agreement to acquire US-based LeanSwift Solutions. The acquisition is in line with Wipro’s strategy to invest and expand its cloud transformation business through Wipro FullStride Cloud Services. The acquisition is expected to close before the end of the quarter ending March 31, 2022, Wipro stated in a BSE filing.
3 IT companies in India for investing in 2021 also talks about Wipro.
Some metrics of Wipro
PE Ratio : 33.95
Dividend Yield: 0.15%
Pic : TickerTape
The views and investment tips expressed here are purely based on my intuitions out of the mathematical analysis done and current news. What suits you better is something to be decided by you. What is in fancy today may become outdated tomorrow. So above every recommendations, it’s your logical intuitions, investment objectives and risk tolerance that matters the most. After all, it’s your money at stake!!