A trader, looking worried works on the floor of the New York Stock Exchange

Investors warned of ‘buying the dip’ in the market downturn, ASX down 10 percent for the year

“Buying the dip” is no longer an easy way for inexperienced traders to make quick money in the stock market, warned one seasoned stockbroker.

That’s despite the ASX 200 being in correction territory, plummeting more than 10 percent (or about $250 billion) in the past year.

It’s a catchphrase among traders that basically means you buy a stock for a “bargain” after its price has fallen sharply and with the hope that it will bounce back.

“I think we all need to get rid of the ‘buy the dip’ mentality, because that’s dangerous in a declining market environment,” said Michael McCarthy, chief strategy officer at Tiger Brokers.

It’s a strategy that has worked well for many who started investing in stocks after the March 2020 COVID-19 crash.

That’s because markets often hit new all-time highs, while central banks (such as the Reserve Bank, US Federal Reserve, and others) cut interest rates to zero and collectively flooded the world with trillion-dollar stimulus measures to offset the economic damage done. by the pandemic.

Stock markets in Australia, the US and Europe have plunged since January 2022.CommSec

But now markets are falling sharply as the RBA and its global counterparts aggressively raise rates and turn off the money tap in a desperate attempt to lower inflation.

In fiscal year 2021-2022, the heaviest losses were felt by local technology stocks and companies buy now and pay later.

The values ​​of former market darlings Zip Co, Sezzle, Megaport and Tyro Payments have each fallen about 70 to 97 percent during that period.

“It’s when investors buy a stock with an optimistic outlook. But those optimistic outlooks don’t materialize and the stock price falls.

“However, instead of cutting losses and walking away, investors are buying more of the same stock.”

Beware of ‘fashionable’ lithium stocks

Many of the best-performing ASX stocks in the past year have been commodity exporters, driven by a rise in lithium, oil, gas and wheat prices.

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