Several recent trades demonstrate this technique. On these charts, the red vertical line on the left shows where a position was opened, while the red vertical line on the right shows where the position was exited. Although this is too small a sample to reflect this, it is observed over time that short positions tend to perform better than long positions with this technique.
On Sept. 15, 2011, GBP/USD — which was caught in a sustained downtrend — experienced a minor rally. However, on shorter time frames, this move was quite significant. The rally attempted to break the 20-period EMA to the upside, but price failed to continue higher. This scenario was given more serious attention as the CCI 20 was moving up, having left the oversold region. A short position was opened. Of course, as you can see in “Cable trade” (below), there were additional likely sell opportunities available prior to that of our strategy.
Our entry price was 1.5850, with a 1.5950 stop loss. On Sept. 21, we hit our profit target of 1.5550 for a profit of 300 pips.