To obtain the success in online currency trading, it is necessary to define the direction of currency movement using fundamental and/or technical analysis, and after that to operate the position with money management principles.
If it is necessary to create a short position on a certain currency pair, currency traders can sell an asset any time, without worrying about rules of short sale, opposing stock traders.
To help currency traders understand when to sell a currency pair without coverage, in this article is presented five bearish signals which determine that the currency pair will rather fall, than grow.
Tip №1: Look for bearish fundamental indicators and events
If the country of basic currency constantly shows negative fundamental economic indicators, for example, delay of growth rates, growth of unemployment and the falling initial interest rates, the currency rate will rather fall in the medium or long term perspective.
Additional bear fundamental indicators: large disaster, war, the financial crisis in the country, scandalous incident or political uncertainty. Announcements of such important events can become the indicator of sharp short-term falling of the corresponding currency rate against stronger currencies which isn't affected by such incident.
Tip №2: Look for bearish patterns on charts
Technical analysts defined a number of classical figures which emerge on exchange rate chart specifies that the currency pair will rather fall, than grow.
Some reliable bearish patterns are listed below. If you have found one of the following patterns you can safely open a short sale:
- Bearish continuation pattern on the chart. Here are flags and pennants, the descending channels and the general descending tendencies (trends).
- Recent breakout from top to down the ascending tendency or a bottom of the horizontal trading range.
- Bearish pivot points on charts. Here are the rising wedge pattern, double tops, the head and shoulders pattern and turned saucer.
- Bearish absorbing patterns on the candlestick chart.
Tip №3: Look for a bearish divergence in momentum indicators
One of the most reliable bearish technical indicators which can form the basis for a short sale of a certain currency pair is the bearish deviation of the momentum indicator in extreme top part. The stochastic, a moving average convergence/divergence (MACD) and relative strength index (RSI) represent momentum indicators.
Tip №4: Look for a bearish point arrangement on the chart
Checking validity of a short sale, verify near levels of support and resistance on both sides of the current exchange rate on the chart. If resistance is strong and close, but support is rather weak and remote, the market most likely will fall.
Tip №5. Look for the strong interest in the sale and the descending moment
The short position of the currency pair is legitimate if the number of sellers in the market considerably exceeds number of buyers.
Also, look for bearish situations when interest in sale constantly prevails over interest in purchasing that causes the descending tendency without essential upper corrections.
Noticing such descending tendency, you have to be convinced that key momentum indicators, such as RSI, continue to support the movement of a course with the continuous decrease in minimum.