Following the British Pound in a Short Trade

A live short trade of the British Pound illustrates how a forex trading strategy that runs counter to market consensus can result in a low risk-high reward trade that can bring big profits for the forex trader. Still using the July 24th 9:30am CET timeframe, you can see how the short position has resulted in profits from an overbought market that has speculators taking long positions in expectation of a continued rally. Indicators show that such market is likely to go into a correction in the near term. So, while the market consensus takes to a continuation of the momentum, a forex trader who puts a stop to his trading system can set up a profitable trade.

After the breakout in the trend manifests, the question of where the currency will move next still remains. In the meantime, those with long positions are washed out causing the British Pound to go on a downward slide. Shorts were covered with a scant profit but Bollinger Band mid-section targeting was met signalling a good long side re-entry. The strategy is to watch the lower Bollinger Band and the 1.9600 level to re-enter the trade.

A key lesson in this trade is to watch the price momentum and the forex trading indicators to get the right signal for entry or exit into a trade. There is no absolute way to predict exactly how the market will behave. Reading the charts and using indicators in timing the trades can work for a successful and profitable trading business. Avoiding premature stops by waiting for confirmation of the signals is one way of making big profits in the forex market.