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Buying on Dips and Selling on Rallies

Buying on Dips and Selling on Rallies

Richard Krivo, Trading Instructor

Students Question:I have heard the expression to buy on dips in an uptrend. What does it mean?Power Course Instructors Response:Take a look at the chart below for a visual

Buying_on_Dips_in_an_Uptrend_body_chart_4_26_11.png, Buying on Dips and Selling on Rallies

You will see that the AUDUSD pair is in an uptrend on this 4 hour chart. Each time that price action retraces (dips down) from its upward move, that is an opportunity to buy the pair. The rationale is that the trader is entering at a better (lower) price as it has “dipped” down from a high and found a support level. Also, the trader will not have to endure the retracement that would occur if they bought the pair at the high.In a downtrend the reverse would be true and the trader would sell thepair each time price actionrallied up and found a resistance level. We can see an example this concept on the 4 hour chart of the GBPAUD below…

Buying_on_Dips_in_an_Uptrend_body_chart_4_26_11_a.png, Buying on Dips and Selling on Rallies

So, in an uptrend webuy on dips and in a downtrend wesell on rallies.

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