Buy the dip, sell the rip

In this write up, I would like to show you how I personally take entries and exits in trades. Hopefully this will help shed some light for those who are still struggling to identify and time their entries and exits.

Before we start though, I’d like to show you that there are 4 stages/states to any market though, illustrated in the image below. We will be focusing on stage 2-4. The up trend of the market, the topping and sideways action of the market, and the down trend of the market. It is during stage 2 and stage 4 that we need to decide whether we are already too late to hop on the train, or do we still have time to get in and turn a profit. Most of the time I find my self missing stage 2, the beginning trader will see it as hype and the market is hot and jump in. Only to find themselves getting in too late and stuck on stage 3. For my self, I usually find my self spotting stage 3, I sit stalking and waiting for the first sign of stage 4 coming. That’s the bulk of my trades.

When I first started out trading, I looked to the vast amount of free material online to learn about making the correct entries. Everywhere I looked I find the same teaching material. Buying the breakout at the break of key resistance, or short the break down at the snap of key support.  I have tried this many many times and I can atone to you that I did not find success whatsoever. The reason for this is because a majority of breakouts fail. I would buy or short them, and a lil bit later finding my self stopping out.  Nod if you have experienced this multiple times.

There is a reason why people say 90% of traders lose. A majority of them learn and use this classic entry signal of buying the break out. So instead of being a follower of what the 90% do, I took a different approach, I started thinking like an institutional trader instead. What do the ‘big boys’ ‘smart money’ do? The mantra of buy low sell high is causally thrown around, but when you buy the breakout, are you really buying low?

So what does it mean by buying low? Looking at any given uptrend chart, you will see and come to establish key support and resistance levels. This is what the institutional traders use. These are the signals they follow religiously. Once key support is established, they buy there and ANTICIPATE the break out. Or they short at key resistance and ANTICIPATE the break down. This is how I make my entries.

By using this method, I have found my self being able to mitigate my risk by a large margin, keeping my stop nice and tight. So if the stock goes against me, I can get out without getting hurt too badly. If the stock goes my way, I have found my self making a lot more gains than those who buy at the break out points.

If I take a buy entry at the support level, by the time the stock reaches the breakout point I would already have taken some profits by selling half my position at the resistance level and set my stop loss at break even. This ensures that I’m 100% green on the trade. As for the other half, it either fails at the resistance level as many break outs do, or on the odd times that the break out does work, I leverage the rest of the world hoping they all buy at that breakout point and help me bust through that mark, and I will be making a nice bonus then.

I’ve attached a few examples of this type of entries vs the classic entries. Don’t just take my word for it. See for your self if this makes more sense to you? The blue circles will be my approach vs the red circles being the classic approach.

Buy the dip, sell the rip!