Entries - How to Buy on Dips and Sell on Rallies Those members who have purchased our systems will quickly acknowledge that we have a fondness for trading systems that go long on dips and short on rallies. We have developed at least one system with that strategy in each of the markets we trade. In the S&P market and the Bond market we have developed more than one system that takes this preferred approach.

The benefits of buying into an uptrend on dips and selling into a downtrend on rallies are probably obvious. If we compare the dips and rallies approach to entering on breakouts we can see that the "dips" entry strategy allows us to enter at cheaper prices with less risk and more profit potential. That is a nice combination of benefits. In this Bulletin we will share some of our conclusions from our many hours of research on how to identify these potentially profitable opportunities.

First, the strategy is going to work best if there is a trend. (Lets simplify things by using examples only for the long side. Unless otherwise noted you can assume the procedure for selling short is just the opposite.) Trend identification is a big topic in its own right but for our purposes we don't have to come up with anything fancy. The direction of a moving average or the relationship of two moving averages will work just fine. We could also take a simple momentum approach and require that the close today must be a minimum amount higher than it was X days ago. For example, we might want the close to be more than three ATRs higher than the close twenty days ago. When we were at Dr. Elder's Trader Camp he recommended that stock traders should look for both a rising 22 week moving average and a rising 22 day moving average. That's an excellent suggestion. We have found that the specific method of identifying the direction of the trend is not critical to the success of the system. In fact we have used a different method of measuring the trend in each of our systems. If you already have a favorite definition of trend by all means use that. Read More..

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