Buy-Dip / Sell-Pullback

Buy the Dip / Sell the Pullback – Trend-Following Strategy (EOD → Next Day Execution)
Overview

This is a trend-following futures strategy designed to participate in pullbacks within established trends, not to predict reversals.
It works on End-of-Day (EOD) confirmation and executes trades on the next trading session, making it suitable for positional and swing traders.

The strategy combines momentum, trend direction, volatility, and price location to filter for high-quality setups while avoiding overtrading.

🔍 Core Philosophy

Trade only in the direction of the prevailing trend

Buy dips in uptrends

Sell pullbacks in downtrends

Avoid chasing price after extended gaps

Use volatility-adjusted risk management (ATR-based SL & targets)

📊 Indicators Used

RSI (20)

Measures underlying momentum strength

Stochastic Oscillator (55, 34, 21)

Confirms pullback exhaustion within a trend

Supertrend (10, 2)

Defines primary trend direction

Bollinger Bands (20, 2)

Provides structural trend bias

ATR (5)

Used for:

Entry gap filter

Stop-loss

Profit target

Supertrend buffer

✅ Long (Buy) Setup – Evaluated at EOD

A long setup is generated when all of the following conditions are satisfied at the close of the trading day:

RSI(20) is above the bullish threshold (default: 48)

Stochastic %K is above %D (confirming pullback momentum)

Supertrend direction is bullish

Price is near or above Supertrend, allowing a volatility-adjusted buffer (ATR-based)

Price is above the Bollinger Band middle line

This combination ensures:

The market is trending up

Momentum supports continuation

The pullback is controlled, not a breakdown

❌ Short (Sell) Setup – Evaluated at EOD

A short setup is generated when:

RSI(20) is below the bearish threshold (default: 52)

Stochastic %K is below %D

Supertrend direction is bearish

Price is near or below Supertrend, with an ATR buffer

Price is below the Bollinger Band middle line

This filters for pullbacks within sustained downtrends.

⏰ Trade Execution Logic (Next Day Rule)

Once a setup is confirmed at EOD, a trade is attempted on the next trading session

To avoid chasing gaps:

Long trades are allowed only if price does not move more than a defined multiple of the previous day’s True Range

Short trades follow the same logic in reverse

This is implemented via limit orders, ensuring realistic backtesting and execution behavior

🛑 Risk Management

All exits are volatility-adjusted using ATR:

Stop-Loss:

1.1 × ATR(5) from entry price

Target:

2.2 × ATR(5) from entry price

This results in a risk–reward ratio of approximately 1:2

ATR is frozen at entry to avoid forward-looking bias.

🧠 Why This Strategy Works

Avoids low-quality trades during consolidation

Participates only when trend + momentum align

Prevents emotional gap-chasing

Adapts automatically to changing volatility

Suitable for index futures and liquid stocks

📌 Recommended Usage

Timeframe: Daily

Instruments:

Index Futures (e.g. NIFTY, BANKNIFTY)

Highly liquid stocks

Market Type: Trending markets

Not ideal for: Sideways or low-volatility environments

⚙️ Customization Tips

You can control trade frequency and aggressiveness by adjusting:

RSI thresholds

Supertrend buffer (ATR multiple)

Gap filter multiplier

Stochastic edge parameter

Looser settings → more trades
Stricter settings → higher selectivity

⚠️ Disclaimer

This strategy is for educational and research purposes only.
Backtest results do not guarantee future performance.
Always validate with paper trading before deploying real capital.