Buying on Dips and Selling on Rallies

In an uptrend, a trader would want to wait for a pullback/retracement to a low, a level of support, and then go long (back in the direction of the trend) with their stop placed just below a recent level of support. This would be referred to as "buying on dips". The oscillator that you mention, could be used to time the entry. For example, entering an uptrend off of a pullback, the trader could use Stochastics as it came from being below 20 and moving above 20 as a sign that momentum would now be in the direction of the trade.

In a downtrend, the strategy would be reversed and we would "sell on a rally".

Take a look at the chart below for a visual...


The USDJPY pair is in a downtrend on the chart so we would only be looking for selling opportunities. Each time the price action moves back up/retraces within the overall downtrend, it would be another opportunity to sell the pair. The stop would be placed perhaps 20-25 pips above the highest point that the pair had traded on that particular upswing.

Also note on the chart below how MACD shows crossovers to the downside indicating that momentum is behind each of the selling opportunities on the chart.

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Source: Richard Krivo, Power Course Instructor (strategist@dailyfx.co)