Definition:
BTFD, or Buy The F****** Dip, is trendy crude-speak that suggests purchasing an asset that’s dropped in price or value.
Understanding BTFD
If you follow social trading channels, you’ll often come across BTFD recommendations for an asset that someone deems “undervalued.” BTFD this; BTFD that! It simply means, “hey, this asset has fallen in price, so you should buy it now before it goes back up.”
The basic assumption behind buying the dip is that the market is underestimating the growth potential for a given asset, or that an asset’s decline is exaggerated, making it undervalued. It aligns with the first part of the basic investing principle “buy low and sell high.”
Why Buying The Dip Can Sometimes Be A Good Idea
If you’re going to “buy low” in order to sell high, then the lower you buy, the better the entry point, so it seems. Purchasing an asset at a lower discount value may yield better returns over time.
But it’s easier said than done, as a “buy the dip” strategy can be confusing at best and loss-generating at worst. Let’s go through a few of the main problems.
Why Buying The Dip Can Also Be A Really Bad Idea
If someone tells you to buy the dip, how do you know if it’s “dipped” low enough to buy? What if the dip is at the crest of a much larger plunge. What if it takes a longer time to rebound than you expected?
Another basic question: how certain are you that the asset’s going to rebound at all within a reasonable timeframe? And if it doesn’t, what’s your plan for cutting your losses? The important thing here is that you distinguish a legitimate BTFD call from hype without fundamental or technical substance.
The Takeaway
Buying the dip is a very delicate strategy. How you approach it can either make or break your account. If you decide to BTFD, be sure you’re doing it from a calculated technical and fundamental perspective. Remember: don’t give in to the hype, but rather, try to determine if there’s an actual signal within the noise.
In the coming weeks, we are going to release a series of blogs with different BTFD strategies.
Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations. There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.