What Is the Dip and Rip Pattern?

Investors have three choices when the asset falls that far: They may opt to return and purchase the asset. This is referred to as "buying the dip." They could opt to short the investment and profit from a drop in its price. Selling the rip is what is meant by this.

Intro

There are many different trading tactics you can employ in stock trading to achieve success. Buying a stock cheaply and then selling it at a higher price is one of the most common strategies used by stock traders. It is also known as "buying low and selling high." Selling the securities at a higher price enables dealers to generate a substantial profit.

Although it seems straightforward in theory, executing this in practice is far more complex. It is primarily due to how difficult it is to predict stock price movement.

The dip and rip technique was created in an effort to attempt to improve the buy low and sell high stock trading approach.

In this post, we'll go over the "dip and rip pattern" method, pattern, and critical points we must remember when using this specific strategy for trading.

What Is the Dip and Rip Pattern?

The dip and rip strategy entails purchasing stock during a downturn and then selling it after the price rises. The stock should have had a high opening price. To put it simply, it combines buying the dip and selling the rip trading tactics.

The practice of placing buy orders when the price of a stock declines (dips) below its average is known as buying the dip. Once the prices of these stocks rise, they sell them for a profit.

In a bullish trend, traders typically wait for price pullbacks to place purchase orders before selling once the prices resume their upward path. As traders anticipate an increase in stock price, it can also be viewed as going long on a stock.

Shorting a stock whose price is already falling is known as "selling the rip." Typically, investors spot a stock that keeps falling in price and rides the bearish trend by placing sell orders. In some circumstances, traders can hold off on entering a sell position until a bullish price pullback.Because of the turbulence in the financial markets, traders developed the dip and ripped approach to help them generate modest but dependable profits. This method has worked well with timing and patience because price pullbacks are nearly a given in a volatile market. It isn't always the case, though, and a trader needs to know when to close orders when the price doesn't move back in his favor because doing so could result in a big loss.

Day traders and scalpers are the main users of the dip and rip trading strategy. It is because swing traders hold their bets for extended periods, and since this short-term method, they cannot employ it.

What Is the Dip and Rip Strategy?

The dip and rip strategy entails purchasing stock during a downturn and then selling it after the price rises. The stock should have had a high opening price. To put it simply, it combines buying the dip and selling the rip trading tactics.

The practice of placing buy orders when the price of a stock declines (dips) below its average is known as buying the dip. Once the prices of these stocks rise, they sell them for a profit.

In a bullish trend, traders typically wait for price pullbacks to place purchase orders before selling once the prices resume their upward path. As traders anticipate an increase in stock price, it can also be viewed as going long on a stock.

Shorting a stock whose price is already falling is known as "selling the rip." Typically, investors spot a stock that keeps falling in price and rides the bearish trend by placing sell orders. In some circumstances, traders can hold off on entering a sell position until a bullish price pullback.

Because of the turbulence in the financial markets, traders developed the dip and ripped approach to help them generate modest but dependable profits. This method has worked well with timing and patience because price pullbacks are nearly a given in a volatile market. It isn't always the case, though, and a trader needs to know when to close orders when the price doesn't move back in his favor because doing so could result in a big loss.

Day traders and scalpers are the main users of the dip and rip trading strategy. It is because swing traders hold their bets for extended periods of time, and since this method is short-term, swing traders cannot employ it.

How To Trade the Dip And Rip Pattern?

Trading the dip and rip pattern is comparable to engaging in a straightforward but essential game. It entails watching for the correct support level to be reached before starting a buy position in the hopes of ripping just as the price begins to move back up. Some trading advice for "dip and rip" investment is provided below:

Timing

You need to know when you will initiate and close a trade to dip and rip successfully in the stock market. Most traders utilize additional information about certain equities to choose when to begin or close deals.

Compared to traders who enter the markets on a whim and without a valid reason, those who time their trades correctly are assured of achieving far more significant outcomes. The dip and rip investment strategy are better suited for short-term investors than longer-term ones because of the nature of the stock market.

The morning after a false but powerful opening would be the best time to use the dip and rip pattern. Traders typically enter the market with buy orders, quickly take control of the market, and then panic sell. When prices start to rise again, this presents the ideal chance to buy the dip and rip. You must do something that most traders find quite challenging if you want to maximize dip and rip opportunities.

Trading hot stocks before the market begins should be avoided.

I am aware that premarket trading can be seductive, particularly when anything is in motion. However, it frequently works against you.

Have trouble with this? The dip and rip pattern might teach you a little patience with its 9:45 a.m. or later moves. You never know; this trend might help you decide on a particular tactic.

You'd be surprised at how many people gain from pausing and concentrating on not being the first person to buy a stock.

Discipline

A stock's price may occasionally fall below the anticipated support level or area. When that occurs, it is your responsibility as a trader to close the position and cut your losses as much as possible. If you don't, you can lose more money while you wait for the price to go up.

Knowing when to take your profits when you make them is another aspect of discipline, particularly during an uptrend. It is due to the possibility that the price could reverse, resulting in a reduced profit or, in the event of a total reversal, a loss.

Choose the right stocks.

Not all equities decline after a significant increase. Some equities will steadily improve in value, while others can continuously decline. As you attempt to dip and rip when this occurs, it may result in substantial losses for you.

To ascertain the typical dip of a particular stock, a technical analysis must be performed, or knowledge of the average dip must be acquired. Most stocks experience a morning decline of between 30 and 35 percent. Watching for news or business announcements is another important part of choosing the proper stock. It will enable you to anticipate drops and increase your earnings.

It's not necessarily going to plummet and tear just because it's a gainer premarket.

A dip and rip gainer won't be just any gainer. A dip and rip are up in the morning, ideally on the news. It is a stock that has previously run; it was once a runner.I prefer to search for a news-driven low float, high gainer. For a stock to be a serious competitor, in my eyes, it must fulfil many criteria.The organization can assist in reducing the variety of available trading options. You may begin by eliminating the most significant gainers. After that, you can compare other factors to evaluate if the deal meets your requirements.

Be Patient

You need to switch into stalking mode as soon as you spot a potential dip and tear.Even though you may be experiencing FOMO, you must be patient and wait for the morning dip. Alternatively, according to my experience, this transfer could take place later in the afternoon, possibly at approximately 2 p.m. Eastern.

Although the dip may be tiny or large, the pattern is quite obvious. The stock begins in the green before crashing. There is a red candle with a wick at the bottom.It is the reason you stay away from the opening entry.

Do not shake out! You can buy into that dip and profit when it regains its highs if you have the patience to wait. Every aspect of learning how to trade is included.

Characteristics of the Dip and Rip Pattern

An ordinary gainer is not a dip and rip. You ought to search for these particular traits.

Low Float: Normally, this is fewer than 10 million shares, but depending on the stock, there may be a slight variation in either direction.

Big Gainer: Relative to what? You should generally aim for gains of at least 20% when trading momentum stocks. However, given the insane state of the pandemic market, that figure may be higher.

With News Reclaiming Premarket Highs: A stock won't consistently recapture its premarket highs without a valid explanation. You wish to ascertain the cause.

As a result of a news stimulus, it frequently occurs. It's good to know that the news doesn't actually matter. It just matters that it's relevant to that particular stock and real news (check legitimate news sources!).

About news... Check out our Breaking News chat room right away. It is headed by two former Wall Street professionals who do your news research. You receive the most essential, useful news. I, Sykes, and many other traders can't get enough of them.

9:45 a.m. or 2 p.m. Entry: With a dip and rip, timing is crucial! I search for this trend between the hours of 9:45 a.m. and 2 p.m. Eastern. Stocks have shown themselves during these periods.

In contrast to a company that soared premarket then faded into nothing, a stock with a lot of these traits has a considerably higher chance of running.

Benefits of the Dip and Rip Pattern 

There are many wonderful things about this pattern. It's a relatively basic pattern to start. Even for novice traders, it is simple to understand and learn.

Second, it gains from the common lousy trading practices of most traders. The majority of traders have virtually NO patience. You may come to adore this design as much as I do if you can develop patience.

Additionally, it's a trend that appears in almost every market. I created a video in 2019 to explain the dip and rip pattern:

There is little doubt that much has changed since then. At the time, there was a wild bull market. We are currently in the wacky pandemic market. But that doesn't mean that this pattern is no longer relevant.

The erratic market we're in right now still fits the dip and rip pattern. It only requires changing your approach. You must be able to respond to changes in the market, timing, and price movement pace.

In many ways, the current unpredictable market is extraordinary. Wouldn't it be fantastic to have a simple guide on understanding the market's chaos?Fortunately, there is a free one.

Tim Sykes, an old-school trading coach and a friend of mine, just published "The Volatility Survival Guide." All traders must watch this, but it's essential if you're new to trading in a volatile market.This two-hour course, free to download, is packed with advice on handling market volatility, not only in this market but also in any future unstable market circumstances.

Examples of the Dip and Rip Pattern 

Let's examine a recent dip and rip since I know that examples make comprehending these patterns easier.On Friday, May 22, Celsion Corporation (NASDAQ: $CLSN) took a dive shortly after opening.

But then, shortly after the opening of trading, or precisely at 9:45 a.m. Eastern, it began to re-break. Look it up on the graph:Let's say you set a risk limit of $2.40 and purchased something at $2.65. You would have welcomed the share price increase of 70 cents. With the volume and reaching 52-week highs, that is.

It might be challenging to locate prospective dips and rips without assistance.I always start by looking for stocks with significant percent gains when I'm working on my watchlist. I want to respond, not plan.

I use The business to locate prospective trades, so there are no many reveal here. It has so many built-in scans that finding stocks that meet this strategy is simple.

The secret is to plan. I'm huge on rising early to get ready. If you've witnessed firsthand how this aids in my day's preparation. And it's not just me. See how the trading day starts for Roland Wolf:

If you're serious about improving your trading. The abundance of educational materials and webinars can hasten your trading education and help you fully comprehend these patterns, making it simpler for you to adjust to their numerous variants.

Additionally, there is that handy new tool on the platform. Conversation for breaking news.

Two market experts who regularly scan numerous news sources, social media, and other platforms manage this discussion room. They can take all that knowledge and reduce it to the information that can be put to use straight away because they have years of expertise. A tool like this has never existed before!

Additionally, be sure to follow the business on YouTube, where we frequently upload new videos and tutorials.

The Bottom Line

Buying stocks when their prices have plummeted and selling them for a profit when their prices have increased is known as "dipping and ripping" in the stock market.Purchasing the dip is typically a smart move. This is so because it offers a low-risk trading opportunity, particularly if you anticipate the emergence of a positive trend.

The dip and rip strategy is a tried-and-true method that enables investors to earn significantly from stock market volatility. Investing in these markets carries a high risk of losing money, especially if you have a small account. It is wise to have an effective risk management system for this reason.

The price quickly dips after a strong opening (often a gap up) in the dip and rip chart pattern. After a downturn, the price quickly climbs back to its high and occasionally surpasses it. Price first drops, then it soars. A significant decrease in stock prices and a solid signal that they will recover again are two requirements for buying the dip. One of the most frequent instances of this is when a huge corporation's stock price decreases abruptly owing to general market apprehension rather than worries about the performance of the business over the long run. Investors that buy the dip have the opportunity to purchase excellent companies at discounted prices. Opportunities rarely come, as renowned investor Warren Buffett famously put it.

Buying the dip in an attempt to time the market is a risky move that could go wrong. An investor decides on a threshold for a price decrease and saves money in the interval in order to buy the dip. If the barrier is 30%, the investor won't buy until the stock price has fallen by more than 30% from its most recent high.