Why oh why oh why do people trade against the trend. Look at this downward channel that GBPUSD has been experiencing. Yesterday I put on a SELL trade at the top of the channel… and it broke up..well it broke across. But my fundamentals on this trade is that USD had good news and was going up on all trades and GBP had bad news. I already knew what the chart was telling me and the fundamentals were telling me, sterling was going down! In fact last night, when it was trailing along in a limp, sideways fashion a much more experienced trader than me claimed that GBP was going to suddenly fall. How right he or she was!
Now don’t get me wrong I don’t like trading sterling, it unnaturally rallies (goes up) before a big drop, sometimes very quickly, which can stop you out, so I always give GBP slightly more stop loss than normal to protect against that. But today it didn’t rally fast. In fact to be honest with you I wasn’t even watching…when I did come back to it I had made a whole lot of profit. But how? By trading the trend. Those 1 day and 4 hour charts are really really important. If you looked at the 15 minute/30 minute chart you would see what looked like a turn around. But how could it be? What would make sterling, who for the last few months has been bearish suddenly retrace? Why risk the trade on a BUY when a SELL makes more sense?.
By the way this is not my normal chart set up, normally it’s much simpler. I just work with channels to be honest. I don’t trade on pairs that are volatile on the daily chart. I need them to be going in a nice strong direction, bullish or bearish. If a currency has been falling for a year, what are the odds of it suddenly rallying? If things do turn round for a currency, although there may be spikes surely it will be a gentle turn. Like coming out of recession, it’s not one fast thing that makes that happen but a huge combination of financial moves.