Retail Traders Keep Buying the Dip — and They Keep Getting Burned

In the ever-evolving landscape of the stock market, retail traders have consistently shown a penchant for buying the dip, a strategy that involves purchasing assets at temporarily lower prices in anticipation of future gains. This behavior has been particularly pronounced during recent market sell-offs, such as the one triggered by President Trump’s trade war. On Friday, April 4, 2025, retail investors bought $4.7 billion in stocks, the highest level over the past decade, according to JPMorgan. This aggressive buying spree was in stark contrast to the 2020 March sell-off triggered by the COVID pandemic, where retail investors largely exacerbated the existing institutional selling, with about 75% correlation between market performance and their subsequent flows.

During the COVID sell-off, retail investors did not have the confidence to pick stocks but instead opted for more diversified ETF exposure, leading to a high ETF-to-singles ratio. In contrast, during the trade war sell-off, retail investors were more willing to buy individual stocks, with Nvidia Corp. and Amazon.com Inc. being among the most preferred picks, with more than $400 million in net buys, respectively. This difference in behavior highlights the varying levels of confidence and strategy among retail investors during different market events.

The motivations behind this strategy include the perception that big technology companies are getting cheaper during market downturns. For instance, individual investors snapped up shares of Nvidia Corp. and Amazon.com Inc. amid a two-day slide that wiped out more than $500 billion between the two companies. They also added to market-tracking ETFs like the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust, indicating a contrarian bet on the market's recovery.

However, financial advisors caution against trying to time the market, as it is impossible to predict stock market moves accurately. Instead, they recommend sticking to a thoughtful, rules-based investment strategy designed to get through to long-term goals. For example, certified financial planner Eric Roberge advises, "We never recommend timing the market, mostly because it is impossible to do without simply getting lucky." He suggests focusing on a disciplined approach rather than trying to catch a falling knife, which is a metaphor for buying stocks during a market downturn in the hope of selling them at a higher price later.

In summary, retail traders' "buy the dip" strategy is motivated by the belief that market selloffs present buying opportunities and aligns with long-term investment goals by potentially leading to higher returns and reducing risk through a disciplined approach. However, it is essential to avoid trying to time the market and instead focus on a rules-based investment strategy.



The behavior of retail traders during market sell-offs, such as the one triggered by President Trump’s trade war, compares to their behavior during other significant market events, like the COVID-19 pandemic. During market sell-offs, retail traders have shown a tendency to "buy the dip," purchasing assets at temporarily lower prices in anticipation of future gains. For instance, on Friday, April 4, 2025, retail investors bought $4.7 billion in stocks, the highest level over the past decade, according to JPMorgan. This behavior was in stark contrast to the 2020 March sell-off triggered by the COVID pandemic, where retail investors largely exacerbated the existing institutional selling, with about 75% correlation between market performance and their subsequent flows. During the COVID sell-off, retail investors did not have the confidence to pick stocks but instead opted for more diversified ETF exposure, leading to a high ETF-to-singles ratio. In contrast, during the trade war sell-off, retail investors were more willing to buy individual stocks, with Nvidia Corp. and Amazon.com Inc. being among the most preferred picks, with more than $400 million in net buys, respectively. This difference in behavior highlights the varying levels of confidence and strategy among retail investors during different market events.