AMD dropped about 11% over two days in early February. Opened at $215 on the 4th, closed at $200. Next day opened at $201 and closed at $192.
I wasn't in the trade, but I watched people in the comments buy at $205 thinking it was the bottom. By the afternoon of day two they were either underwater or had already panic-sold somewhere in the $193–196 range.
The entry wasn't the problem. Buying a flush is a real strategy, you're looking for capitulation and a bounce. The problem is buying it without deciding in advance where you're wrong.
If you buy at $205 with a stop at $200, you get stopped out, lose $5, and move on. If you buy at $205 with no stop, you make the decision to cut while you're already down $10 and watching it go lower. Those aren't the same decision.
I've done the second version more times than I want to admit. The entry felt urgent, so I skipped the stop placement step.
Does anyone find dip-buy stops specifically harder to stick to? Like mentally it feels different than a stop on a breakout trade — not sure why.
The mistake isn't buying the dip — it's buying it without a stop
byu/PropertyPrompts inoptions
Posted by PropertyPrompts
2 Comments
this sounds smart in theory but dip buying messes with your brain way more than breakouts. on a breakout you already accept you might be wrong, but on a dip it feels like you’re getting a “deal” so your brain keeps saying just a little more room, it’ll bounce. people underestimate this part — it’s not really about stops or strategy, it’s ego. you don’t want to admit your “cheap entry” wasn’t actually that smart.
so instead of a planned -5 loss, it quietly turns into -10, then -15… and now you’re not trading anymore, you’re just hoping.
>The entry wasn’t the problem.
I disagree with this.
If you think a further dip is impossible you’ve made the error of a bad entry.
Your position *should* contain a variance of safety. So if the price of the long call option is $1 that you’re interested in you assume, in a downtrend, at least a margin of 20~30% depending on delta, so your buy order is $.70.
Volatility would have dictated that if they did this, because prices don’t usually just go “straight to the point”, an exit would have presented itself at a minor gain in a short amount of time. If you’re going to fight a trend understand that you can absolutely be wrong AF. I’ve been in more trades after learning to do this where I caught prices I didn’t think could happen than missed opportunities.