Is buy-the-dip a real strategy or just a meme?

Buy-the-dip is a loose phrase until someone writes down what a dip is and when to leave. The drawdown dip buyer does that with two rules. It buys with 98% of the sleeve when the price is more than 10% below its 20-day high, and it rests a limit order at the entry price times 1.08. Between signals it holds cash. There is no stop-loss.

We ran those rules on 59 ETFs from 2021-01-04 to 2026-10-02, about 5.7 years of minute data, starting from $10,000, with no margin and no fees or slippage in the headline run. The median ETF returned a CAGR of 1.33% with a median maximum drawdown of 26.19%. The rule finished ahead of buy-and-hold on 22 of the 59 funds, and 32 of the 59 had a positive CAGR.

The pattern is testable, and the test gives a split answer. On a handful of volatile funds the dip rule produced double-digit CAGRs. On the median fund it barely traded, and on the funds that kept falling it bought once and sat in the loss. The rest of this answer goes through where each of those happened and why.

Drawdown Dip Buyer + 8% Target across 59 ETFs

Median CAGR 1.3%, median max drawdown −26.2%, ahead of buy-and-hold on 22 of 59 (2021-01-04 to 2026-10-02).

The five strongest and five weakest results. All 59.

What the rule does on a typical fund

The median ETF had 2 round trips in the whole window and was invested 36.6% of the time. Two trades in nearly six years means the headline numbers rest on very few events. A single entry that lands on a bad day, or a single exit that arrives two months late, moves the CAGR by several points. The strategy page lists every trade for each fund, and the counts there are small for most tickers.

The cause is the entry filter. A fund has to fall more than 10% inside a 20-session window before the rule acts. Broad index funds do that rarely. SPY had 11 separate 10% drawdown events in the window, spread over 23 sessions in total. QQQ had 21 events over 82 sessions. TLT had 3 events over 5 sessions. The rule cannot buy a dip that the fund never produced, so a low-volatility fund spends most of the test in cash.

Cash is also why the CAGR figures look low next to buy-and-hold. In 2025 the median strategy return across the 59 funds was 5.2% against 11.1% for buy-and-hold. In 2021, 2022, 2023, 2024 and 2026 the median strategy return was 0%, which fits a fund that spent the year in cash or had no trade close. The number of funds with a positive return that year ran from 13 in 2026 to 31 in 2025.

Why volatile funds give the rule more to trade

The same filter behaves differently on a fund that moves fast. TQQQ had an annualized volatility of 67.11% and an average intraday range of 4.74%. It logged 56 separate 10% drawdown events over 478 sessions. SPY had 11 events over 23 sessions. A 10% drop from a 20-day high is a routine week for a triple-leveraged fund and an unusual one for the large-cap US index.

That is the mechanical reason leveraged and sector funds head the table. SOXX returned a CAGR of 27.48% over 19 round trips with a 100% win rate and 64.4% exposure. TECL returned 24.71% over 18 round trips. FAS returned 24.15% over 18 round trips, ahead of its buy-and-hold CAGR of 18.34%. ROM returned 19.87% and QLD returned 18.58%.

Each of those funds also fell and recovered many times, so an 8% bounce was available again and again. The exit is a resting limit order, so each trade closes as soon as the price touches the target. After the exit the sleeve is back in cash and ready for the next 10% drop. The strategy is in effect a harvest of repeated shakeouts on assets that keep returning to their highs.

A 100% win rate that hides the risk

Every one of the six strongest funds shows a win rate of 100%. That figure describes closed trades only, and the rule closes a trade at one price: the +8% limit. There is no exit that books a loss, so a closed trade cannot lose. A losing trade stays open, and the open position does not count in the win rate.

The drawdown column shows what the open positions cost. SOXL had a CAGR of 16.42% with 17 round trips, but its maximum drawdown was 88.53% and it was invested 96.8% of the time. TECL's maximum drawdown was 76.28%. QLD's was 61.99%, and ROM's was 66.32%. These are peak-to-trough losses on the account while a position waited for its target.

SOXL is the sharpest example. Its buy-and-hold CAGR was 33.32% against the rule's 16.42%, so the dip rule gave up return and still carried a very deep drawdown. The wins arrived steadily and the losses sat unrealized until a rebound closed them. A reader who sees only the win rate and the CAGR would miss the 88.53% figure.

Where the same rule failed

The weakest results share a feature: the rule bought once, early in a long decline, and never got its 8%. TMF had 0 round trips, 98.6% exposure and a CAGR of -29.84%, against -31.16% for buy-and-hold. REW had 1 round trip and a CAGR of -33.5%. SQQQ had 4 round trips and -39.18%. TECS had 2 and -45.31%. SOXS had 4 and -46.17%. UVXY had 0 and -48.7%, within 0.04 points of its buy-and-hold figure.

These funds were invested between 98.2% and 98.6% of the time. The rule was effectively buy-and-hold with a late start. Their maximum drawdowns ran from 87.5% for TMF to 97.89% for SOXS. For a fund that falls most years, a dip is the normal state, and a trigger that fires on any 10% drop fires early and often.

UVXY shows the extreme. It lost money in every calendar year of the window, from -44.65% in 2022 to -89.67% in 2021, with a total return of -99.94%. The RSI(14) was below 30 on 116 sessions, and the median 20-day return after those sessions was still -5.82%. A fund that decays by construction rewards no one for buying weakness.

Results by type of fund

The category medians show the same split in aggregate. Grouping by fund type:

• Leveraged ETFs: 10 funds, median CAGR 16.42% against 23.55% for buy-and-hold, median maximum drawdown 66.32%, ahead of buy-and-hold on 3.
• Sector ETFs: 6 funds, median CAGR 6.78% against 12.58%, median maximum drawdown 32.73%, ahead on 0.
• Broad index ETFs: 12 funds, median CAGR 4.11% against 14.42%, median maximum drawdown 25.05%, ahead on 1.
• Alternative-strategy ETFs: 6 funds, median CAGR 2.25% against 7.61%, median maximum drawdown 8.68%, ahead on 0.
• Inverse ETFs: 11 funds, median CAGR -19.86% against -21.57%, median maximum drawdown 77.21%, ahead on 10.
• Volatility products: 3 funds, median CAGR -16.68% against -16.06%, median maximum drawdown 65.3%, ahead on 1.

The leveraged group has the best median CAGR and the deepest drawdown among the groups that made money. Broad index funds, the group most people would try first, returned a median 4.11% against 14.42% for holding them. The rule sat in cash while the index recovered without producing a 10% dip.

Bond and currency funds are a different case. Their median CAGR was 0% and their median maximum drawdown was 0%, which means most of them never triggered. The bond median buy-and-hold CAGR was -0.78% and the currency median was -0.9%, so the rule stayed ahead of buy-and-hold on 5 of 7 bond funds and 2 of 3 currency funds by doing nothing. The one commodity fund had a CAGR of -0.78% against 13.66% for holding.

Why the inverse funds beat buy-and-hold and still lost

The inverse group is the oddest line in the table. The dip rule was ahead of buy-and-hold on 10 of the 11 inverse funds. Their median CAGR was -19.86% against -21.57%. That reads like a win, and it is a gap of under two points on two very bad numbers.

The rule beat buy-and-hold on those funds because it started late. It waited for a 10% drawdown from a 20-day high, and an inverse fund that is falling produces one quickly. Entering after the first drop avoided a small part of the decline, and the position then rode the fall nearly as far as buy-and-hold did. The strongest inverse result, REW, still had a CAGR of -33.5%.

The practical reading is that the dip signal has no information about direction. It reacts to a past drop. On a fund with positive drift the drop often reverses. On a fund with negative drift the drop continues, and the rule has no way to tell the two cases apart. That asymmetry is what the short answer calls asset selection.

What changing the thresholds does

We reran the template with four variants and took the median across the 59 funds.

• A 7% drawdown trigger with the 8% target: median CAGR 3.18%, median maximum drawdown 28.16%, median 3 round trips.
• A 15% drawdown trigger with the 8% target: median CAGR 0%, median maximum drawdown 7.7%, median 1 round trip.
• A 10% trigger with a 6% target: median CAGR 1.18%, median maximum drawdown 25.93%, median 3 round trips.
• A 10% trigger with a 10% target: median CAGR 1.68%, median maximum drawdown 26.19%, median 2 round trips.

A shallower trigger trades more and earned more at the median, 3.18% against the default 1.33%. A deeper trigger traded less, and at the median it never traded, which is why its drawdown is small. The target changed less than the trigger did. A 10% target gave 1.68% and a 6% target gave 1.18%, close to the default.

The pattern says the entry threshold decides how much capital is working, and the target decides how long each trade lasts. None of the four variants fixed the missing stop. The drawdown stayed near 26% to 28% for every variant that traded. We did not search for a best setting, and the numbers come from the same window as the headline run, so they describe sensitivity, not an optimum.

Dips on SPY, IWM and TQQQ compared

The market profile pages give the underlying behavior. IWM returned a CAGR of 8.03% with a maximum drawdown of 31.92% from 2021-11-08 to 2022-06-16, and it did not recover until 2024-11-06. The RSI(14) fell below 30 on 33 sessions, and the median 20-day return after those sessions was 0.22%, below the unconditional median of 0.82%. For IWM, buying weakness did not beat buying on a random day.

SPY shows the opposite reading on a short sample. The RSI(14) was below 30 on 18 sessions and the median 20-day return after them was 2.86%, against a baseline of 1.73%. TQQQ had 18 such sessions and a median 20-day return of 6.9% against a baseline of 3.62%.

Those samples are small. 18 observations over 5.7 years is a few independent events, because oversold readings cluster in the same selloffs. They suggest that dips on funds with an upward drift recovered more often than average in this window, and that IWM was an exception. They do not establish a rule.

TQQQ also shows the cost of the approach. Buy-and-hold ended at $36,585 with a maximum drawdown of 80.77%. A rule that exits at +8% caps each trade, and TQQQ gained 198.32% in 2023, a year with large gains that a capped exit leaves on the table.

How the other eleven templates compare

The dip buyer's median CAGR of 1.33% is the lowest of the twelve templates apart from the two that show 0%. The weekly 7% target had a median of 6.61% with 106 median round trips. The monthly cycle had 5.46% and the RSI(2) snapback had 4.74%. RSI mean reversion had 2.98% over a median 15 round trips.

The RSI(2) snapback is the closest relative, since it also buys short-term weakness. It trades a median of 166 round trips, was ahead of buy-and-hold on 34 of 59 funds and had a median maximum drawdown of 17.47%, against 26.19% for the dip buyer. It defines the dip over two days and exits when RSI(2) recovers above 70, so it holds for short periods and does not wait for a fixed profit. The shorter holding time is the structural difference that shows up in the drawdown.

The dip buyer has the fewest trades of the mean-reversion templates. That makes its results the most dependent on timing. A page of 59 funds with a median of 2 trades each is closer to 59 small experiments than to one tested rule.

What this test cannot tell you

The window runs 5.74 years, from 2021-01-04 to 2026-10-02. It holds one deep bear market in 2022 and one fast rebound after it. A longer multi-year decline is outside the data, and the rule holds its position through declines, so a longer fall would extend the open losses on the funds that triggered.

Daily decisions fill on minute bars with no fees or slippage in the headline run. The cost runs add 5 and 10 basis points, and a strategy with a median of 2 round trips has few fills to charge. A strategy with 106 or 166 round trips has many more.

The sample is also 59 funds, many of them correlated. The leveraged funds that did well track related indexes at different multiples, so the count of independent winners is smaller than the table suggests. Results are hypothetical and say nothing about what a future dip does.

The two terms behind the rule

Drawdown is the percentage decline from a peak to a later trough. The dip buyer uses it twice: as the entry trigger, measured over 20 sessions, and as the risk figure that tells you what holding through a dip cost. The maximum drawdown column in every table on the strategy page is the second use.

Mean reversion is the tendency of a stretched price to move back toward its recent average. The dip buyer is a mean-reversion rule with a fixed profit target. Such rules tend to win often in small amounts and lose rarely in large ones, and the 100% win rate against the 88.53% drawdown on SOXL is that profile in numbers. A related question is whether buying at RSI 30 and selling at 70 behaves the same way.

Terms used here

Related questions

Backtests are hypothetical, computed by DeployQuant's engine on minute-resolution consolidated US market data (2021-01-04 to 2026-10-02, $10,000 starting capital, no margin, no fees or slippage in the headline run; buy-and-hold puts 98% of the account in at the first open, as the templates do) and do not guarantee future results. Nothing on this page is investment advice. Live trading involves risk of loss.