Many traders focus on trading on rising forex currency pairs, as BUY positions are more conventional and often associated with good performance. However, sometimes hitting that SELL button may be just as good of an opportunity. With that in mind, short selling in the forex market may require additional knowledge and expertise. In this article, you’ll learn everything you need to know about short selling forex assets to start earning in any market conditions.
What is a short position in forex?
Going “short” or opening a short position means trading with a prediction of the asset price going down and expecting a positive outcome from a trade in that direction. Short positions can also be referred to as “bearish” and the traders that open short positions are called “bears”.
Similarly to long (BUY) positions, you can open as many short (SELL) trades as you want. Just keep an eye on your balance to make sure there’s enough money in your account to open a new trade.
When to short sell forex assets?
The decision to hit BUY or SELL should be based on the asset performance and your trading method. Normally, a short position is opened when the asset is predicted to decline soon. Your job is to pick the best entry point for the deal and find the right time to exit the deal to maximize your profit.
To evaluate the market, a trader may choose between technical and fundamental analysis or apply both. When short selling on the forex market, traders may want to apply the appropriate risk-management tools, such as setting a stop-loss level, to manage any sudden market moves.
How to short sell forex on IQ Option?
Here are the main steps to follow when a trader wants to try short selling in the forex market.
- Pick a forex currency pair that you think is going to decrease in price soon.
- Choose the amount you’d like to invest in this trade.
- Open a deal at the current price.
4. If your prediction was correct, and the asset price went down, you can close the deal and receive your profit.
4 tips for successful short selling
Short selling on the forex market is a great opportunity to profit from a downward market. However, it’s not the most basic strategy out there. You may need to spend some time following market trends and analysing the charts to maximize its potential. Here are some tips for forex traders who want to take advantage of the falling market.
1. Use market analysis
As we mentioned before, it can be useful to conduct extensive technical and fundamental analysis before going short on forex. Look for clear downtrends, resistance levels, and bearish signals in price charts and indicators. For technical analysis in a bearish market, you can turn to the STARC Bands, the Relative Vigor Index or the Psychological Line indicator.
Here’s an example of the Relative Vigor Index applied to a forex price chart. Normally, when the indicator line crosses the 0 line and moves lower, it points to bearish sentiment. It may be a good idea to keep an eye on the price and enter a short position, if the downward trend continues.
Stay updated on economic news and geopolitical events that can impact the currency pair you’re considering. You can check the latest market news in the traderoom, without leaving the IQ Option platform. Just go to the ‘Market analysis’ section of the traderoom and discover the key events that might influence your forex assets.
2. Set realistic profit goals and stick to them
Some traders let the greed take over and keep their short positions open longer than needed. This may cause them to miss the optimal exit points for their trades and risk losing their profit.
However, sometimes you may need to adjust your strategy and make an exit earlier than planned. The market can be unpredictable, so stay updated on economic news and events that can impact the currency pair you’re shorting.
3. Apply risk management tools
Determine your risk tolerance and set a stop-loss level that aligns with your trading plan. This will help you save time and protect your capital from unexpected moves of the forex market.
4. Keep practising
Short selling forex assets, like any trading strategy, requires practice and patience. Start with small positions and gradually increase your exposure as you gain experience and confidence. You can make notes about your past deals in the trading journal to analyse your performance and avoid common mistakes.
Ready to try your hand at short selling forex assets? Head over to the IQ Option platform and seize the best opportunities forex market has to offer.
