Guide to buying the dip

“Buy the dip” — when stock prices head south, like they did during the uncertainty around Trump’s tariffs earlier in 2025, this is a popular phrase among investors. But what does buying the dip mean, how do you do it, and what are the benefits and risks involved with this bargain-hunting strategy? Keep reading to find out.

What does ‘buy the dip’ mean?

When we say buy the dip, we’re not talking about the guacamole or the French onion. Instead, buying the dip is a strategy that involves buying a stock once it has fallen in price but you expect it to rebound.

The basic premise behind buying the dip is an obvious one: buy low, sell high. When you pick up a stock at a discount, there’s the potential to make a larger profit in the long term. And as investors who got in following the COVID-19 stock market crash of March 2020 will tell you, there can be lucrative returns on offer.

What buying the dip can look like

Let’s say the stock price of Company XYZ has fallen 10% in recent times due to broader market uncertainty surrounding geopolitical tensions. But the fundamentals of the company remain strong, it’s in good shape financially and its future prospects are bright. By buying the stock when its price has dipped, you’re aiming to pick it up at a discount.

But you’ll need to know how to identify a stock that is undervalued and set to rebound in price, plus be willing to accept the fact that successfully timing the market to perfection is more or less impossible.

4 steps for how to buy the dip

Ready to buy the stock market dip? Here’s what you need to do.

Step 1: Choose a stock trading platform

You’ll need to make sure you’re set up and ready to buy the dip whenever it occurs. Compare stock trading platforms to find a broker with low fees, an easy-to-use platform, and access to the assets and markets you want to trade. When you’ve found the right platform, create an account by providing your personal info and contact details, then deposit funds so you’re ready to trade.

Learn more about choosing a platform in our guide to the best stock trading apps in Canada. You may also want to look for the best brokerage signup bonuses to help you decide where to trade.

Use the table below to start comparing online brokers in Canada.

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Finder Score	Available Asset Types	Account Types	Stock Trading Fee	Monthly Account Fee
Promoted Finder Score 8.8 Great Interactive Brokers	Finder Score 8.8 Great	Stocks, Bonds, Options, Index Funds, ETFs, Forex, Currencies, Futures	RRSP, TFSA, Personal, Joint	min $1.00, max 0.5%	$0	Go to site More info Compare product selection Compare	loading
Finder Score 7.6 Great CIBC Investor's Edge	Finder Score 7.6 Great	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, Precious Metals, IPOs	RRSP, RESP, RRIF, TFSA, Personal, Joint, Business, FHSA	$6.95	$0 if conditions met, or $100	Get 100 free online stock and ETF trades when you open a new account & get up to $15,000 in cashback when you transfer funds from outside CIBC to your new or existing account. Valid until March 31, 2026. T&Cs apply.	Go to site More info Compare product selection Compare	loading
Finder Score 7.4 Great Moomoo Financial Canada	Finder Score 7.4 Great	Stocks, Options, ETFs	RRSP, TFSA, Personal, FHSA	$1.49/stock	$0	Get up to $4,600 in trading perks. T&Cs apply.	Go to site More info Compare product selection Compare	loading
Finder Score 8.1 Great Qtrade Direct Investing	Finder Score 8.1 Great	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, IPOs	RRSP, RESP, RRIF, TFSA, Personal, Joint, FHSA	$0	$0	Get 5% cash back on every dollar you invest up to $15,000 and 1% cash back on any amount above that. Plus, new clients receive unlimited free trades. Use code QTRADE2025. Valid until January 5, 2026. T&Cs apply.	Go to site More info Compare product selection Compare	loading
Finder Score 9.1 Excellent Questrade	Finder Score 9.1 Excellent	Stocks, Bonds, Options, Mutual Funds, Index Funds, ETFs, Forex, GICs, Precious Metals, IPOs	RRSP, RESP, RRIF, TFSA, Personal, Joint, FHSA	$0	$0	Get free contracts, no commissions and a 30 day free trial of Questrade Plus. Use offer code FREEOPTIONS. T&Cs apply.	Go to site More info Compare product selection Compare	loading

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Finder Score for stock trading platforms

To make comparing even easier we came up with the Finder Score. Trading costs, account fees and features across 10+ stock trading platforms and apps are all weighted and scaled to produce a score out of 10. The higher the score, the better the platform—it's that simple.

Read the full methodology

Step 2: Monitor the market

Stay up to date with the latest financial and political news. Monitor the markets and key indices like the S&P 500 and TSX 60, and track the performance of the economy as a whole. That way you’ll be ready to pounce when any investing opportunities arise.

Step 3: Identify stocks you want to buy

Research stocks, ETFs and mutual funds that you want to invest in. Look for companies with strong fundamentals by checking factors such as their assets, debts, cash flow and profit margin.

Use this information to work out whether the stock is currently overpriced or whether its current market price reflects its true value. Set price targets for any investments you want to buy — many brokers make it easy to set up price alerts so that you will be notified when the stock falls to the price you want.

Step 4: Wait for the dip and place a buy order

When the dip occurs and prices drop into your target zone, log in to your brokerage account to place a buy order. Choose the number of shares you want to buy and the price you want to pay, then review any fees that apply before placing your order.

How to choose stocks when buying the dip

A dip in the market isn’t necessarily a good buying opportunity. And just because a stock has fallen in value, that doesn’t mean it’s likely to rebound. Rather than diving in headfirst at the first sign of falling prices, you need to take a considered approach before buying the dip.

Understand why the price fell

First, wrap your head around why stock prices have fallen. Is it a market-wide disruption or focused on a particular sector? Have any specific stocks been especially affected?

It’s important to look for signs that this is only a short-term drop. There are a myriad of factors that can cause stock market volatility, and some of them won’t affect a company directly but more the market as a whole.

For example, let’s say uncertainty surrounding Trump’s tariffs has driven the market down across the board.

But the company you want to invest in has a strong Canadian and global presence, and any fallout from the US-Canada trade war is likely to have minimal impact on its growth potential. If that’s the case, there could be a chance to buy the dip.

Research the company

Now it’s time to narrow down your options to Canadian stocks to buy on dip, or ETFs or securities on international markets for that matter.

The key is to look for a company with solid fundamentals that remains well placed to bounce back from any temporary price drops. Think of it with the old sporting cliché: “Form is temporary, class is permanent.”

Perform fundamental research and analysis to work out the intrinsic value of the stock. A stock’s intrinsic value is its true worth, not whatever its current market price is.

One common way to calculate a company’s intrinsic value is to work out the stock’s price to earnings ratio, but you can also calculate it by checking the company’s cash flow or comparing its assets to its liabilities.

Consumer staples often provide a safe haven during times of market downturn. These companies offer products and services that are always in high demand, so they can provide growth potential even during periods of uncertainty.

Look beyond individual stocks

For the average investor, identifying individual stocks to buy using this strategy is difficult, time-consuming work. It’s also worth remembering that while an individual stock may not necessarily bounce back from a price drop, history has shown that markets as a whole will rebound.

So if you’re determined to try and buy the dip, rather than investing in individual stocks, you might be better off investing in an index fund designed to track the performance of a major stock market index like the S&P 500.

Risks of buying the dip

The biggest risk of buying the dip is if the stock price doesn’t rebound but rather continues to fall sharply. Getting caught in this situation is known as “catching a falling knife”.

There are plenty of reasons why the stock’s price may not rebound as you expected it to. The company could release lower than expected earnings figures, for example, or disappointing figures for the economy as a whole could dent the company’s financial outlook.

If you try to buy the dip, you may experience losses before you experience gains. You may not make any gains at all.

Unfortunately, there’s no way to predict with certainty what will happen to the “falling knife” stock. It could continue to fall and “cut” you, resulting in further losses for you and potentially bankruptcy for the company, or it could eventually undergo a rapid rebound, which is known as a “whipsaw”.

There are some risk management strategies you can use for added protection when trying to buy the dip — we’ll get to them in a minute.

Drawbacks of buying the dip

There are a few other key risks to watch out for when buying the dip:

• No guarantee of a rebound. Historically, stock markets as a whole have recovered from dips, but there’s no guarantee that an individual stock will bounce back.
• You need spare cash to invest. You’ll need to have a lump sum of cash ready to invest when an opportunity arises. Even if you hold those funds in a high-interest savings account while waiting for a dip, your interest earnings won’t match the potential for higher returns that the stock market does.
• Getting the timing right is extremely difficult. As the saying goes, time in the market beats timing the market. Instead of waiting for the “right time” to invest, which might not arrive anytime soon and could be hard to identify when it does, the best approach is often to just get started. If you have a large lump sum you can use to buy and hold for the long-term, or if you’re using a dollar-cost averaging strategy and investing at regular intervals, there’s a good chance you’ll end up better off in the long run rather than if you try to buy the dip.
• It could be a slow rebound. It could potentially take years for the price of a stock or ETF to rebound to its previous highs. Take the S&P 500 and the 2008 global financial crisis as an example. In December 2007, the S&P 500 was trading at over 1,500 points, but it didn’t close above 1,500 again until early 2013.
• Day trading risks. Targeting short-term dips as a day trader is complicated and time-consuming. It’s best left to experienced traders.

How to reduce risk when buying the dip

There are plenty of things you can do to minimize risk when trying to buy the dip:

• Use stop-loss orders. Use stop-loss orders to restrict your losses if the market doesn’t move as you expect it to and the dip continues. You can also set a price goal so you know the minimum profit you want to achieve before selling a stock, or simply opt to hold the investment for the long-term.
• Maintain a diversified portfolio. Diversification is a key risk management strategy for all investors. Spreading your investments across a wide range of market sectors, regardless of whether you’re trying to buy the dip or not, will offer protection in times of volatility.
• Only use a small portion of your total funds. Leaving a big pile of funds in reserve while you wait for the “right” time to invest could see you miss out on several opportunities in a market trending upwards. Instead, set a small percentage of your total funds aside to use to buy the dip, and invest the rest straight away.
• Use technical analysis. Stock charts are a useful technical analysis tool for traders who want to spot price trends and volume patterns. It’s complicated and can be overwhelming for new investors, but you can learn more in our stock market charting guide.
• Stay up to date. Monitor the performance of any stocks you hold and stay abreast of key economic news. Make sure that the investments you hold still remain solid choices that align with your financial goals.

Is it worth buying the dip?

It can be — provided you get the timing right.

Dips are common in a bull market. Even if the price of a stock is generally trending upwards, it doesn’t head there in a straight line. There will be troughs and flat patches along the way — just take a look at a historical price chart of the TSX 60 or S&P 500 as evidence of this.

And if you can accurately identify a short-term dip in a market that is otherwise trending upwards, you can maximize your potential profits. In other words, you buy a stock when its price is low, then sell it when the price reaches a high point.

Buying the dip can also work if there’s a stock you’re interested in, but you think it’s currently overvalued. Set a target price, wait for the stock to drop to that level, and if the company’s fundamentals are still strong, pick it up at a discount.

But even if you timed the market perfectly on every single occasion — which is impossible — it actually might not make too much difference in the long run.

A study from the Schwab Center for Financial Research looked at hypothetical investors who received $2,000 at the beginning of every year to invest in the S&P 500 for the 20 years ending in 2024. At the end of this period:

• The investor who timed the market perfectly, investing $2,000 at the exact time of each year’s lowest closing point, amassed $186,077.
• The investor who had awful timing and invested their $2,000 at the market’s peak each year ended up with $151,343.
• The investor who invested their $2,000 on the first trading day of each year accumulated $170,555.

So, considering the difficulty of timing the market, most people might just be better off simply investing straight away.

Bottom line

When the stock market drops, opportunities arise. But while buying the dip offers the potential for profits, it also comes with its fair share of risk. It’s also worth remembering that timing the market perfectly is virtually impossible, so focus on choosing high-quality stocks, ETFs and mutual funds that are well placed to help you meet your long-term financial goals.

Frequently asked questions

• How do I choose TSX stocks to buy on dip?

  There are several factors to consider when choosing Canadian stocks to buy on dip. You'll need to assess why stock prices have fallen, whether there has been a wider market downturn or whether it has been focused on a specific sector, and when you expect the market to rebound. You'll then need to look at the fundamentals of individual companies, for example, calculating its cash flow or its price-to-earnings ratio. Alternatively, you could research ETFs and mutual funds that provide access to a basket of stocks and aim to track the performance of a specific index or sector.

• How can I buy the dip in crypto?

  The strategy of buying the dip is to invest in cryptocurrency during a market dip. The aim is to pick the crypto up at a discount in the hope that it will soon rebound to or even above its former price high. But the high volatility of cryptocurrencies, the difficulty of timing the market, and the potential for the crypto you buy to fall even further in value, mean buying the crypto dip comes with a very high level of risk.

• Is buying the dip profitable?

  Buying the dip has the potential to be a profitable strategy, but there's no guarantee of success. When done right, it allows you to invest in a stock at a discounted price, providing increased profits if that stock then rebounds to or above its previous value.

  But timing the market is also extremely difficult. There is also the risk that the value of the stock continues to fall, possibly all the way to zero, so you could lose money on your trade.

Written by

Tim Falk

Writer

Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio

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