Ever heard the expression “buy the dip – sell the rally”? Selling the rally or “retracement” (or pullback) in a downtrend does make sense. After all, no market ever moves in a straight line and a pullback gives us a slightly more efficient entry compared to if we just sold the spike.
The past few days we have seen EurUsd, GbpUsd and AudUsd all pullback. Yes, the market breathed in (and retraced) before it could breathe out again and make a lower low.
GBPUSD yesterday closed as an inside seller bar – rejecting the previously tested dynamic level of resistance – the 20ema. Inside bars signal indecision. Could the break of yesterday’s low be the confirmation for further downside movement?
GBPUSD Daily Chart
Certainly, many traders will use this as their signal so they too can either add to an existing long-term Cable sell or to create a new position. They will typically place their sell order below the low of Wednesday’s inside sell bar (minus spread, minus a pip) and place their stop above the high (plus spread).
We would rather see a “ringed high” set-up to entry this trade – however, we recognise yesterday’s inside “sell bar” as a valid entry to enter this fast-moving, down-trending market.
Remember, anything in the market can happen at any time – and there are no guarantees.
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