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by Finage at August 17, 2022 4 MIN READ
A sudden drop in the value of stocks or cryptocurrency can be discouraging. But it doesn't necessarily mean you should sell all your shares. The dip may present a great opportunity for you to buy stocks since prices are lower. The drop in prices is usually not long-lasting. So if you buy the dip, you can sell them at a higher price later on. A nosedive in the market prices may present more opportunities, especially for those looking for long-term investments.
One of the advantages of the downfall in the market is the discounts for most stocks. This only works if you have the right sights on when to buy stocks. So how can you buy the dip? What are some indicators that can help you get started? There are 3 main indicators to look out for before buying the Dip, let’s check them out and make an analysis on how to buy the Dip.
S&P 500 is a company that tracks over 500 companies on the stock market. This index usually gives a clear and accurate idea of what the stock market is like. So if there is a loss or rise in the value of different stocks the company's value will reduce or increase respectively.
S&P has only had a few drops since it was created. These coincide with major drops in the economy. As of June 2022, S&P has suffered another drop which is expected to last a few months. By looking at previous trends, you notice that after each fall, the company was able to increase its value, sometimes double what it was during the fall.
This gives you an idea that the current dip will eventually end and lead to a significant rise in value. So if you buy stocks during the current dip, you know that the value will increase. This is the right time to buy stocks.
Dips occur all the time. But knowing when the economy will pick up helps you when deciding to buy plummeting stocks. That is exactly what VIX does. This indicator helps you when a market will pick up the heat again by tracking volatility.
Volatile stocks can easily change in any direction. A stock that changes by more than one percent be it a loss or increase, is defined as being volatile. So a market to be deemed volatile, it needs to have a VIX score of 20 to 25.
People have a huge impact on how volatile a market is. Whenever there is a change, people will panic. This panic will increase how volatile a market is. As prices reduce, people are scared of further losses. So they end up selling shares for less than they purchased. Over the years, VIX has increased in value each time there was a crisis.
The current value of VIX is 30.5. This means the market is not volatile currently. So there won't be another rebound in S&P until after several months. It is only when people start panicking that you can expect the market to be volatile.
If you want to know what people are thinking, then google trends are the perfect tool. It gives you information about what people are thinking based on the most searched things online. Through the top search queries, you will have access to data. Currently one of the most searched terms is a recession.
With Google Trends, you need a baseline that helps you to compare to current changes. It is better to assess if there is an actual change. Even if people may not actively search for a recession during one, you will be able to tell that they are panicking. On a graph, this would appear as spikes. What’s more?
So when should you buy Dip?
These last yeast have been tough, spectacular rise and fall of non-profitable tech: since S&P 500’s pre-pandemic peak in February 2020 till 2021, the speculation-fueled cohort, now underperforming the broader market, has collapsed in relative terms. So take into account the real data and historical aspects.
However, you can find a few main requisites for buying it. First of all, follow when there is a clear decrease in stock prices and also see an intense indication that they will rise again. For example, if a huge organization's stock price falls down unexpectedly due to broad market issues, sooner than the concerns raised about the company's future performance.
Buying dips can be a risk. But just like anything in the stock market, proper insights reduce the chances of making losses. S&P 500, VIX, and Google Trends are good insights to look at when buying the Dip. Currently, S&P is at a lower value. In the past, it has been a good predictor of how the economy is performing. With each drop, this company has come back even stronger. So you can expect the same to happen.
VIX is all about how volatile the market is. Volatility goes hand in hand with emotions. The more people panic, the higher the volatility of a market. As of June 2022, the market is not as volatile. Then if you look at Google Trends, you will see that whole people are searching about recession, but there are still not a lot of panics. Once more people start searching about recession, it will be a great time to buy the dip.
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