Is ‘Buy The Dip’ Trading Strategy Back In Play?

The stock market chopped along during the final session of the week after economic news delivered mixed signals.

Inflation is still pushing near 40-year highs, as wholesale prices rose more than expected, according to the latest U.S. Producer Price Index (PPI) report released before the opening bell on Wall Street today.

Consumer sentiment rose month-over-month but is still historically low, according to the University of Michigan (UMich) Consumer Sentiment Index report released after the bell.

A choppy market influenced by these economic reports presents challenges to traders, and even more significant news events are slated for next week.

‘Buy the dip’ opens new trading opportunities

In the middle of all the news events, the Simpler Trading team looks for trade opportunities no matter how the market responds to these data releases.

Raghee Horner, Managing Director of Futures Trading at Simpler Trading, is focused on the Dow and its momentum that can benefit nimble traders.

The Dow comprises 30 prominent companies that include sectors such as financials, technology, healthcare, transportation, and industrials.

“These five sectors dictate what the Dow is most likely to do,” said Raghee.

She estimates the Dow as the strongest of the three major indexes and noted that the Dow turned into an uptrend on Nov. 11.

This has provided Raghee with opportunities to pursue equities that are following that upward momentum. The upside movement brings into play the strategy of “buy the dip,” the cornerstone of her 33-plus years of trading.

Traders can watch for market moves with more news events ahead.

Economic news events next week include the U.S. Consumer Price Index (CPI) on Tuesday and the Federal Open Market Committee (FOMC) meeting Wednesday.

Understand how ‘buy the dip’ works

Raghee doesn’t see the buy the dip strategy like the media pundits who tend to be late to the next market move.

“The dip is really a retracement or a reversion to the mean,” Raghee said. “Buy the dip is simply buy the reversion or buy the retracement.”

For Raghee, the mean is based on the alignment of the 8-, 13-, 21-, and 34-period exponential moving average (EMA) on a technical analysis chart.

“When they align there is more likely an uptrend versus downtrend versus chop,” Raghee said. “That’s the way I like to think about when I would buy the dip – only in uptrends.”

Overall the stock market and the indexes may not appear to be in an uptrend.

During the trading session today, the Dow was chopping along near flat while the Nasdaq and S&P 500 were able to gain limited ground through midday.

To define an uptrend, Raghee focuses on those EMA levels within the indexes, then within the sectors, and then with specific equities.

Not the time to pause for traders

Raghee has been day trading to combat the uncertain volatility of the stock market this year. With the new year just a few weeks away, she is staying proactive in searching for new trade opportunities.

“December is all about getting ready for 2023 – the mindset, the tactics, etc.,” Raghee said. “When everybody else is ‘phoning it in,’ taking it easy, we’re going to turn up our efforts. This, as I like to call it, is separation season.”

“We’re going to separate from everyone else who figures they’re going to coast through the end of the year,” Raghee said.

For more on Raghee’s strategies and to watch her trade live, check out her mastery program.