What strategy involves allocating a portion of your portfolio to a security and increasing your position when the price dips?

• A. Buy on the dips
• B. Investing in long-term stocks
• C. Short selling
• D. Diversifying across sectors

Answer: (A)

The strategy that involves allocating a portion of your portfolio to a security and then increasing your position when the price dips is known as "buying on the dips." This approach is rooted in the belief that a security's price will eventually recover after a temporary decline, providing an opportunity to purchase more shares at a lower price. By doing so, traders can maximize potential gains as the price rebounds, effectively lowering their average cost basis for the security.

This strategy is particularly effective in volatile markets or with securities that traders believe have strong fundamentals. It relies on the principle that market fluctuations can create buying opportunities, allowing traders to capitalize on short-term price movements while maintaining a long-term view on the asset's value.