The one key element for traders looking to “buy the dip” is support. Support levels are powerful because this is the level where we see buying interest due to previous buying, trend lines or moving averages.
Even during market selloffs where the drop seems to have no floor, support can have a powerful impact. Let’s study these momentum stocks during the current selloff. Notice that all of these bounced at previous lows or key moving averages.
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Remember, we are always trying to make the complex simple, and nothing is simpler than buying at support levels.
SPY bounces off October ’14 low
GOOGL bounces off pre-earnings breakout gap level
CMG bounces off 200 dma
UA bounces off 200 dma
These charts are great examples of the power of support and how to trade during market selloffs.
Next week I will present a webinar on swing trading and handling market selloffs. Keep your eyes peeled for info from www.bullsonwallstreet.com