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Buy the Dip and Sell the Rally

Buy the Dip and Sell the Rally

2011-10-20 19:12:00
Richard Krivo, Trading Instructor
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When identifying a pair that is in an uptrend, the concept of Buy the Dip can be put to good use. The idea is that as the pair continues to move higher, invariably there will be pullbacks/retracements/dips that occur. When those take place, the trader is presented with an opportunity to enter the trade (buy on a dip) in the direction of the trend at a more favorable price.

Take a look at the chart below for a visual on this concept…

Buy_the_Dip_Sell_the_Rally_body_buy_dips_10_20.png, Buy the Dip and Sell the Rally

To time our entry into the trade, an oscillator can be used so we can enter when bearish (downside) momentum shifts to bullish (upside) momentum. In this case we chose Slow Stochastics. (Note the timing of the entry with the Slow Stochastics crossover to the upside in the circles.) When buying on dips a stop can be placed below the lowest candle or wick that occurred during the retracement or dip.

In a downtrend, the process would be reversed. Take a look at the chart below…

Buy_the_Dip_Sell_the_Rally_body_sell_rally_10_20.png, Buy the Dip and Sell the Rally

As price action moves up, we would Sell the Rally back into the downtrend.

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