Imagine you see a bull market. You see the market take a dip and you strike. You buy a big position as the market is going down.
But you have caught the bottom of the market perfectly and the price starts to skyrocket higher again.
You have a big winner in just a few days!
Now imagine doing that all the time.
This is the essence of the Flip Back Strategy. Perfectly buying dips in bull markets and selling rallies in bear markets.
Here’s how it works.
You first have to define the trend. Is it bullish, bearish, or neutral. You can define it even more precisely. Wildly bullish, bullish, or slightly bullish. And so on.
This is really important. You get the trend wrong and you get the trade wrong.
How can you determine the trend?
There are many ways. You can use a classic definition like the market is making higher highs and higher lows. You can use trend lines. You can use moving averages. You can just use your eyeballs.
Use whatever works for you but make sure you use the same technique all the time.
Now that you know the trend you are ready to find an entry point. Let’s say it is a normal bull market.
We need a technique to tell us exactly when to buy on the dip. We need a technique that gets us buying at the low of the dip or very close to it.
We want a technique that has some type of good risk management or you can use options with to control risk.
It turns out that there are many techniques like this. Let me outline just one.
I have a technique called Boing Boing. Here are the basic rules. I’ll use a bull market as an example but just flip the rules upside down for bear trades.
First, identify the trend. In Boing Boing, I tell people to use their eyes to determine the trend. But, the trend must be perfectly clear. No hesitation about the trend. I want to know the trend for the last 2-3 weeks.
OK, got it? Have you identified a market with a very clear trend?
Now when do you buy?
I use a standard indicator called RSI. You can find it on almost all charting packages. Try Stockcharts.com for a free chart service with RSI.
The market starts to dip. Wait until the RSI closes below 30. That is your signal to buy. Buy market on close the day it closes below 30 if you can. Otherwise buy market on open tomorrow.
Boing Boing will get you long at or very near the bottom of the dip just about every time. Of course, it is not perfect and you may have the occasional loss. But surprisingly not very often!
Of course you also need to make sure you have good risk management techniques.
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