Who says playing favorites is a bad thing? The dip and rip pattern is one of my all-time favorite trading patterns.
You can’t trade 16,000 stocks. You can’t trade 1,600 stocks. You’ve got to narrow down your criteria somehow … One of the best ways to do that is by really zeroing in on a few key patterns that work for you.
This has been one of my go-to patterns for years. It’s been a key pandemic trading pattern, but it’s so much more than that. The dip and rip is an easily recognizable pattern that seems to show up all the time, regardless of market conditions.
I personally consider this one of the best patterns and trading setups for new traders. It’s at least worth getting to know, so let’s get to it…
Table of Contents
- 1 Anatomy of the Dip and Rip Pattern
- 2 Benefits of the Dip and Rip Pattern
- 3 Making the Most of the Dip and Rip
- 4 Characteristics of a Dip and Rip
- 5 Example of a Dip and Rip Pattern
- 6 StocksToTrade
Here’s how a dip and rip plays out…
It starts a strong opening, followed by a quick dip in stock price. The brief dip is followed by a rapid reclaim of its previous high, and potentially even more growth…
Hence the name dip and rip.
There are other names for this pattern … I’ve heard some traders call it a ‘weak open, high-of-day break.’ But there’s a certain satisfaction to the phrase ‘dip and rip,’ don’t ya think?
What’s it look like? We’ll get to that, first let’s cover…
Breaking Down the Dip and Rip Pattern
This pattern starts with a common trading struggle. Plenty of traders see a big gainer in the premarket, and they want to jump in. The FOMO is real.
The problem? A lot of these big gainers in the premarket have a huge gap down in the morning, right after the market open.
They get stopped out. But then the stock levels out and starts gaining. That can leave traders thinking, “why didn’t I wait?”
That’s the backstory behind this pattern … and also the key to playing it.
The key to this pattern is patience — it’s crucial. You have to wait as the throngs of traders are stopped out. You’ve got to be the smart trader who can wait until about 9:45 a.m. Eastern and buy on the dip. Then you either need to have the discipline to cut losses or hopefully ride the ripping action.
Benefits of the Dip and Rip Pattern
There’s a lot to love about this pattern.
First off, it’s a pretty simple pattern. It’s easy to learn and to grasp, even for new traders.
Second, it benefits from the reliable bad habits of most traders. Most traders have basically ZERO patience. If you can learn to be patient, you could grow to love this pattern as much as I do.
It’s also a pattern that shows up in just about any market. In 2019, I made a video explaining the dip and rip pattern:
Obviously, a lot’s changed since then. We were in a crazy bull market at the time … Now we’re in the crazy pandemic market. But that doesn’t mean this pattern has become obsolete.
The dip and rip pattern still applies to the volatile market we’re in right now. It’s just a matter of adjusting your strategy. You gotta be able to react to variations on the sector, timing, and the speed of price movement.
The current volatile market is exceptional in a lot of ways. Wouldn’t it be great to have a clear-cut primer on how to make sense of the madness going on in the market?
Luckily, there is one, and it’s FREE.
My friend and O.G. trading mentor Tim Sykes released “The Volatility Survival Guide” recently. This is necessary viewing for all traders — especially if you’re not used to trading in a volatile market.
This two-hour guide available at no cost, and it’s jam-packed with tips for dealing with market volatility … Not just in this market but any future volatile market conditions, too.
Full disclosure: I’m featured in it too, demonstrating ways StocksToTrade can help you find the hottest stocks in the hottest sector.
Making the Most of the Dip and Rip
Like I said, this has been a go-to pattern of mine for years. Here’s a little wisdom I can impart based on what I’ve learned…
Timing Is Everything
To make the most of dip and rips, you’ve got to do something that most traders find really difficult…
Avoid trading hot stocks before the market opens.
I know, premarket trading is tempting, especially when you see something running. But it usually works against you.
Struggling with this? The dip and rip pattern, with its 9:45 a.m. or later moves, could help you learn a little patience. This pattern just might help you zero in on a specific strategy.
With the SteadyTrade Team, I talk a lot about the time of day … You’d be amazed at how many people benefit from taking a step back and focusing on not being the first one in a stock.
(By the way, we’ve changed our name. StocksToTrade Pro is now SteadyTrade Team. Learn more here.)
Look for the Right Stocks
Just because it’s a gainer premarket doesn’t mean it’s gonna be a dip and rip.
Not just any gainer will be a dip and rip. A dip and rip is up in the morning, ideally on news. It’s a stock that’s run in the past, a former runner.
Personally, I like to look for a low float, big gainer with news. A stock has to check multiple boxes to be a strong contender for me.
StocksToTrade can help narrow down the many trading choices out there. You can start by filtering down the biggest gainers … From there, you can cross-reference some of the other variables to see if the trade fits your criteria.
Once you identify a potential dip and rip, you need to enter stalking mode.
Sure, you may be dealing with FOMO, but you’ve got to be patient and wait for that morning dip. Alternatively, this move could happen later in the afternoon — around 2 p.m. Eastern or later in my experience.
It might be a small dip or a big one, but the pattern is pretty easy to see. The stock opens green and slams down. You see a red candle with a wick at the bottom. This is why you avoid that entry right at the open.
Avoid that shakeout! If you can be patient, you can buy into that dip and benefit when it reclaims its highs. It’s all part of how you learn to…
Be Disciplined in Every Trade
Don’t get greedy. If the stock doesn’t follow the pattern, it’s probably time to get out.
But even if the stock is doing what you planned, don’t overstay. These stocks all tend to fade back. So take that small gain and move on. If you don’t sell, you’ll likely end up regretting it more often than not.
Bring up just about any OTC chart. They’ll show a morning panic and a bounce, and then they fade all day. These stocks gap down the next day … and the next day … and the next day.
The biggest mistake people make with this pattern is getting greedy. Don’t!
By the way, OTCs made a comeback in this pandemic market. Check out how our awesome TWIST podcast hosts nailed some of these plays:
Characteristics of a Dip and Rip
A dip and rip isn’t just any old gainer. You should look for these specific characteristics…
Low Float: Typically, this is less than 10 million shares, but there can be a little give or take in either direction depending on the stock.
Big Gainer: This is relative. In momentum stock land, you’ll typically look for at least 20% gains. But that number could be even higher, especially in this crazy pandemic market.
With News Reclaiming Premarket Highs: A stock won’t reliably reclaim its premarket highs without a good reason. You want to figure out why.
Usually, it’s the result of a news catalyst. The good thing is that it doesn’t really matter what the news is. It just matters that it’s real news (check actual news sources!) and related to the specific stock.
Speaking of news … You gotta check out our Breaking News chat room. It’s run by two former Wall Street pros who scan the news for you. You get the most noteworthy actionable news. Sykes and I — and plenty of other traders — can’t get enough. Learn more here.
9:45 a.m. or 2 p.m. Entry: Timing matters with a dip and rip! 9:45 a.m. and 2 p.m. Eastern are times when I look for this pattern. These are the points where stocks have proven themselves.
If a stock has a lot of these characteristics, its likelihood of running is much higher, compared to one that spiked premarket and faded into nothing.
Example of a Dip and Rip Pattern
I know it’s easier to understand these patterns with an example, so let’s look at a recent dip and rip.
On Friday, May 22, Celsion Corporation (NASDAQ: $CLSN) took a dive shortly after opening.
But then, shortly into the trading day — at pretty much 9:45 a.m. Eastern exactly — it started to re-break from that point on. Check it out on the chart:
So say you’d bought at $2.65 and set a risk level of $2.40 … You would have been happy to see it go up 70 cents per share … That’s with volume and gaining 52-week highs.
It’s hard to find potential dip and rips without a little assistance.
When I’m working on my watchlist, I always start by looking for big percent gainers. I want to react, not anticipate.
No big reveal here — I use StocksToTrade to find potential trades. It’s got so many built-in scans that make it easy to find stocks that fit this strategy…
Preparation is key. I’m big on getting up early to prepare … If you’re a SteadyTrade Team member, you’ve seen firsthand how this helps me prepare for the day ahead. It’s not just me either. Check out how Roland Wolf starts his trading day:
If you really want to up your trading game, consider joining the SteadyTrade Team. The many learning resources and webinars can help fast-track your trading education so that you can really understand these patterns inside and out, making it easier to adapt to their many variations.
And again, there’s that super nifty new tool on the platform … Breaking News chat.
This chat room is run by two market pros who look at tons of news sources, social media, and more … They have years of experience, and they can take all that information and distill it down to the stuff that’s actionable right now. There’s never been a tool like this before!
And don’t miss StocksToTrade on YouTube — we post new videos and tutorials all the time!
What’s your go-to pattern? Are you a dip and rip fan? I love learning your favorite patterns … I’m always ready to learn from you and expand my own trading knowledge. Leave a comment with some of your favorite patterns below!