Corrective movement following a strong rally triggers the Dip Trip. This trade setup recognizes the pullback as an opportunity to buy at lower prices, in anticipation of a swing back toward the highs. The dynamics require a bull trend, a strong breakout, and high volume in order to work as expected.

Greed-based bull psychology controls the physics of rally movement. This reduces the odds that the pullback will follow through and trigger a new downtrend. The best dip trades limit candidates to early pullbacks after a breakout, in order to avoid overbought conditions that increase the odds for a reversal.

The Dip Trip carries a high win ratio when entered properly, and in favorable conditions. The disciplined trader can turn a profit in 60% to 70% of trade executions. The key lies in a proper exit strategy. The trade dynamics may depend on an Elliott "B wave" correction. This predicts the bounce will eventually fail and lead to a lower low. Therefore, it's best to take profits as soon as momentum from the bounce starts to dry up.

Don't confuse the Dip Trip with the investor's habit of "buying the dip". Although similar, a precise mathematical scheme drives these trade entries. And they always focus on highly condensed price and time criteria.

The most effective trade entries utilize Fibonacci numbers to locate appropriate execution prices. Robert Fischer studied the crowd dynamics behind this force in his book Fibonacci Applications and Strategies for Traders. This volume provides many useful examples of Fibonacci-based trades.

Locate entry points by placing a Fibonacci grid across the highs and lows of price waves. The 2nd bottom of a double bottom pattern often provides an excellent starting point for the relative lows. Place more grids within smaller time frames for detailed price analysis that encloses the ascending lows and extreme highs.

Use cross-verification to locate expected reversal levels. Complete your analysis by examining moving averages, prior gaps, and trendlines. Look for support-resistance to synchronize with the Fibonacci grid.

Dip Trips appear in all time frames, and are highly effective scalping day trades. 2 to 5 day, 5-minute bar charts provide an effective framework to locate profitable dips. During these short-term trades, tape reading can offer better feedback than technical analysis. But profitability increases when entries synchronize with intraday moving averages. Dynamic intraday trends typically find support at a 5 or 6 period, 5-minute bar moving averages.

Trend relativity errors constitute a major risk with Dip trades. By misinterpreting relative time frames, i.e. mixing minor and major trends, profits evaporate as a larger correction takes hold. Fortunately, even poor Dip entries may provide several opportunities for a safe exit. Risk adverse traders should wait for deep retracement numbers before entry. They will miss a few good trades, but the odds shift dramatically in their favor at these extreme levels.

Time absorbs volatility
Loss of volatility is the enemy of the active trader. Flat markets steal profits as effectively as losing positions. Measure the impact of time on Dip Trip profitability by counting the number of bars within the last rally wave. Compare that number to the bar count after the dip begins. Corrective moves should complete in less time than the prior rally in all cases.