I have to confess, that back in the day when I started trading the stock market without much knowledge, how uncomfortable I felt every time I entered with a buy order and the market turned in the opposite direction.
A protective stop-loss was never an option as it hurt my ego, and following the market trend with a short position was not an option either since that feature was not available back then.
To clarify for a moment, so we are all on the same page, to go short or short is simply selling a financial instrument before you buy it.
Yes, that’s right! You heard correctly.
In the forex market, one can sell before they buy.
Say you identify the early stage of a downtrend.
What do you do?
You sell so you can benefit from the decline.
A trader’s job and, more precisely, a technical analyst’s job is to identify the trend at an early stage and trade in the same direction.
If the trend is up, then enter the market with buy trades.
On the other hand, if the trend is down, then it makes sense to enter the market with sell trades.
In a nutshell, the forex market provides opportunities both upward and downward.
Let me give you an example before we wrap up.
Say that after analyzing the EURUSD, you identify on the price chart the beginning of an uptrend.
Then it makes sense to place a Buy order.
Of course, it is equally easy to comprehend that when the market reaches the take profit level, the trader will close the trade, which behind the “scenes” is equivalent to a Sell order.
So, to recap. We buy low and sell high.
I believe everybody understands this.
Now, let’s discuss a selling opportunity in a downtrend.
After analyzing the price chart, we identify the very beginning of a downtrend.
What are we going to do?
Open a sell trade or go short, as it is also known.
So, sell at the predetermined price, and when the market declines to the profit target, we close the trade, which is equivalent to a buy trade.
Right?
As you see at the end of the transaction, the result was the same. Buy low and sell high.
It's not that hard, after all.