When to Buy Dips and Sell Rips

Learn a powerful technique to identify the predominant trend of any asset and determine whether it creates a bias to buy the dips or sell the rallies.

Regular readers of this newsletter know that I like to share educational trading and investing tutorials and tips in addition to providing market analyses. I do this to help my valued subscribers become better traders and investors on their own, and also to ensure they can better understand my content, as I frequently apply these techniques. Today, I’m excited to share a powerful lesson on when to buy dips and sell rips across a wide range of assets, including precious metals, commodities, stocks, currencies, cryptocurrencies, and more.

Before diving into today’s lesson, I recommend reading my tutorial on how to identify and trade with the trend, not against it, as well as my recent article on why I don’t worry about assets becoming overbought when they are in strong confirmed uptrends, as is currently the case with gold, silver, and mining stocks.

The core idea behind the technique I explained in those two articles, which I rely on heavily in my own analysis, trading, and throughout this newsletter, is to identify the predominant trend of a market or asset and trade in the direction of that trend, not against it. A trending asset is like a supertanker that takes miles to turn around because of its strong momentum. There is a much higher probability that it will continue moving in the same direction rather than reverse, which is why it is smarter to go with the grain than fight it.

There are several ways to identify the predominant trend, but I prefer the simplest: using the slope of the 200-day (or 200-period) moving average. If it’s sloping upward, the asset is in a confirmed uptrend. If it’s flat, the asset is in a sideways trend. And if it’s sloping downward, the asset is in a downtrend. You can easily check this on almost any charting platform, as most include this basic indicator—even though most traders use it quite differently than I’ve described here.

Now that we’ve established how to identify the predominant trend, I want to introduce another important technical analysis concept: identifying overbought and oversold conditions. An asset is considered overbought when it becomes technically stretched to the upside following a sharp rally. Conversely, an asset is considered oversold when it becomes technically stretched to the downside after a sharp decline. This status is typically measured using momentum-based technical indicators known as oscillators, such as the Relative Strength Index (RSI) or Williams %R.

For the purpose of learning when to buy dips and sell rips, I prefer to use the Williams %R indicator. That’s the indicator you’ll see displayed in all the charts throughout today’s article, positioned just below each asset’s price chart. In this tutorial, I’m using charts from StockCharts.com instead of my usual TradingView charts because, for teaching purposes, I prefer how StockCharts visually highlights the Williams %R indicator. The green and red shading makes it easier to see when an asset is overbought or oversold.

Once the trend of an asset is established, it helps define your trading or investing bias. For example, if an asset is in an uptrend, I focus solely on the bullish case and look for opportunities to maximize gains from long positions. I intentionally ignore negative commentary, such as the current claims from gold skeptics, because it distracts from the broader upward trend. Conversely, when an asset is in a downtrend, I concentrate on the bearish outlook and avoid giving weight to positive news, since it often fails to change the overall direction and is usually followed by further weakness.

With that foundation in place, I’ll now explain how to interpret overbought, neutral, and oversold oscillator readings depending on the type of trend. Each scenario is very different and requires a distinct approach.