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The rotating, magnetized steel needle aligns with the direction of the earth's magnetic field when no other magnetic field is present. in its horizontal position, it can be used as a conventional compass.
The Dip Needle is a compass pivoted to move in the plane containing the magnetic field vector of the earth. It will then show the angle which the magnetic field makes with the vertical. The needle must be accurately balanced so that only magnetic torques are exerted on it.