In simple terms
Buy the dip means purchasing after price has fallen because the decline is expected to be temporary. The “dip” may be a small pullback within a trend or a much larger fall; there is no universal threshold.
Turning the phrase into a plan
Before buying, define why the thesis remains valid, what would invalidate it, the maximum size, and any staged entries. Support or an oversold reading provides context, not a promise of reversal.
Buying a decline selected at the trader's discretion is not the same as DCA on predetermined dates and amounts. Repeatedly adding while an existing position loses is averaging down and increases exposure.
Limit
A decline does not guarantee a rebound or make an asset automatically cheap. If the underlying information or market structure has changed, “buy the dip” may simply add capital to a continuing loss.
Sources
- FINRA, What Is Market Timing? — frames the difficulty and risks of decisions based on short-term market moves.
- CME Group, Technical Analysis — discusses trends, pullbacks, and why markets do not move in a straight line.
- Investor.gov, Asset Allocation and Diversification — connects risk, time horizon, concentration, and diversification.