I bet you have heard of the statement “The Trend Is Your Friend”. From this statement alone, you should understand the importance of trading in the direction of the trend. However, not many people really know how to trade in the direction of the trend. Therefore I decided to write this post to elaborate more on how you can trade the trend.
The key to riding the trend is to always remember this statement: Buy the dips in an uptrend and Sell the rally in a downtrend.
So how can you buy the dips in an uptrend?
Even when the price is in an uptrend, there are also times where it will retrace backward before it continues to move further up. The time when it retraces are known as DIPS.
If you are able to analysis when the dips will reverse, you will be able to enter a LONG trade when the price moves back up.
Here is when you should enter a LONG trade in a DIPS:
1) Trend Line: The trend line serves as good support level when the market is in an uptrend. Whenever you see the price retraces back to the support level, you can enter a LONG trade.
2) Oscillator Reaching Oversold: You can make use of oscillator like the Stochastic or RSI to help you check if the price has reached the oversold zone or not. This can gives you additional conditions to enter a LONG trade.
The same apply to a market that is in a downtrend. There are also times where you will see the price retraces up before it moves back down forming a RALLY.
The way you trade the RALLY is the same as the DIPS except that you should be looking for resistance level instead of support and oscillator reaching overbought instead of oversold.
I have been trading profitably with this principle of buying the dips and selling the rally. Hope that you can benefit and make money from it too.
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