March 20, 2006 at 2:18 pm | | Comments 0

I Love A Good Deal!

This is an excellent dip-buying market, but you’ve got to know how to do it right if you want your trade to be a winner!

The idea of buying stocks on a dip sounds nice, but it isn’t easy to put into practice. Some people think that buying a stock on a dip means that any weakness should be bought. Well, what defines a dip? It depends on the timeframe! When do you know that a stock has finished “dipping” and is now ready to turn higher? Should every purchase be made on a dip?

My standpoint (and that of is not to buy any stock just because it looks “cheap.” Buying a stock simply because it’s at a lower price than it once was is never a reason to buy in my opinion. Maybe you can shop on the weekends that way, but in the trading world, you’ll often pay dearly when you buy weakness. I wouldn’t buy a stock that just got pounded, even if it is much cheaper than it’s ever been. In fact, you’d probably be far better off short selling a stock on a 52-week low than buying it.

The only time to buy a stock is when you think it’s going higher.

Having said that, the only time it makes sense to buy a stock on the dip is when it’s in the middle of an uptrend! During an uptrend, a dip is merely a pullback which sets up a new pivot point for buying. What’s also nice is that pullbacks within uptrends also produce natural stop-loss areas which let you manage your trade much better than buying blindly. So, let’s see an example of what buying a pullback looks like.

Last night, BWNG popped up on my scans as an uptrending stock that appeared to be completing a pullback within the trend. The stock had great recent momentum and had pulled back slightly off the highs but mostly was moving sideways. A well-defined trend line was seen along the highs of the past couple of weeks, which provided us with an excellent swing trading pivot point. I highlighted BWNG in my stock newsletter last night with a $13.00 buy point.

BWNG BWNG is in a well-defined uptrend, and the minor pullback presented an excellent buying opportunity for us at this morning when it cleared $13.00.

….. and so far this stock is rocking to the tune of more than 11%….

BWNG Intraday Chart BWNG has been smooth sailing since it triggered our $13.00 buy point this morning, giving us a very nice (and quick) profit of 11% and counting.

When you commit to buying the dips, be sure you’re doing so when there is an uptrend intact! Don’t buy a downtrending stock that will leave you feeling more like a stuckholder than a stockholder. Buying pullbacks within uptrends can give you a great initial move and put your trade well into the black right from the start!

Jeff White
President, The Stock Bandit, Inc.

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