Buy the dips and sell the rips is a common slogan used in technical analysis in FOREX trading. This simply means buying whenever there’s a decent retracement in a buy trend and selling whenever there’s a decent retracement in a sell trend. This trading concept can be applied in any time-frame and produces great result if well utilized.

Trading in line with the major trend is the main key to successful buying the dips and selling the rips system. We can make use of any time frame with this strategy; however I usually love to check out the main trend on the daily time-frame and then come to the smaller time-frame like 1hour to spot entries.

 

IDENTIFYING THE LONG TERM TREND:

I use the cross of 21 and 55 EMA on the daily time-frame to spot the general trend in the currency pair. If 21 EMA crosses the 55 EMA upward and we also have higher highs candle pattern formation, then it simply means the current trend is bullish (buy). On the other side, if 21 EMA crosses the 55 EMA downward and we also have lower lows candle pattern formation, then it simply means the current trend is bearish (sell) in the currency pair.

 

SPOTTING BUY SIGNALS FOR DIPS:

After a buy confirmation of the general trend on the daily time-frame, then the next step is to come to the 1hour time frame to spot buy entries. For buying the dip signals, we must wait for 21 and 55 EMA to be crossed upwards as well on the 1 hour time-frame. This is to ensure that we have a long term and medium term buy trend in play.

The next step is to wait for price to retrace to a support pivot or demand zone with an oscillator and a zig-zag confirming the market is temporarily at that time oversold. You can use an oscillator such as the Stochastic, RSI or CCI to confirm this and then prepare for a fresh buy signal.

After this series of events, the main trigger for buying would be a bullish price action to get us into the market. I usually use different price actions formation depending on what the market presents. P.A’s I make use of varies which includes the engulf pattern, inside bar, pin-bar, hammer and dark cloud.

 

 

SPOTTING SELL SIGNALS FOR RIPS:

This is the opposite setup for buying the dips and it’s very simple as well. After a sell confirmation of the general trend on the daily time-frame, then the next step is to come to the 1hour time frame to spot sell entries. For selling the rip signals, we must wait for 21 and 55 EMA to be crossed downwards as well on the 1 hour time-frame. This is to ensure that we have a long term and medium term sell trend in play.

The next step is to wait for price to retrace to a resistance pivot or supply zone with an oscillator and a zig-zag confirming the market is temporarily at that time overbought. You can use an oscillator such as the Stochastic, RSI or CCI to confirm this and then prepare for a fresh sell signal.

After this series of events, the main trigger would be a bearish price action to get us into the market. I usually use different price actions formation as well depending on what the market presents. P.A’s I make use of varies which includes the engulf pattern, inside bar, pin-bar, hammer and dark cloud.

 

 

SETTING STOP LOSSES AND TAKE PROFITS:

Use recent swing lows or support for buy stop losses.

Use recent swing highs or resistance for sell stop losses.

Use times 2 of stop losses for both buy and sell take-profits to make risk to reward 1:2.

If you are an aggressive trader you can let your trade keep running, however an exit rule must be applied should in-case the trade reverses as the FOREX market is very dynamic.

 

Below is a diagram of the GBP/USD daily and 1 chart. The daily trend shows that the GBP/USD is in a sell trend which you can visualize using the horizontal line to indicate the starting of the sell trend, so it was very easy spotting sell signals on the 1 hour time frame each time the market bought temporarily.

GBPUSDDaily            GBPUSDH1

DAILY TIME FRAME                                                          1 HOUR TIME FRAME

 

This doesn’t sound easy as it is but after so much practice and balanced trading psychology, a trader can master the art. Also do not forget that sound money management is another important element in trading the FOREX market. Patience, discipline, endurance and consistency are the key to being a successful trader. I hope this piece of information in this article brings more pips into your accounts and wish all reader a successful trading career.

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