Bearish on the GBP/USD

The Pound recently attempted to rally against the dollar--a rally that could have provided a tremendous break out but it failed. Now the Pound is looking rather bearish and I present these two charts to illustrate my opinion. The first is a daily chart of the GBP/USD with the TLT Trender v2 indicator (an indicator that paints the candles green and red) applied to the chart. As you can see, the TLT Trender v2 has given a fresh sell short signal which indicates that the trend is down for the time being (note that the TLT Trender v2 is a trend following incidator and as such, it can give many false signals when the market action is choppy because trend following systems take lots of losses while waiting for a big trend to emerge). As noted on the chart, I'll be looking for some new short term lows to confirm the bearish trend on the daily time frame.

Next, lets take a look at the 4 hour chart.The most important thing to take away from the above 4 hour chart (besides the red TLT Trender reading) is that the prior 3 rallies have sold off rather quickly. This indicates that the market does not have faith in the pound and traders have been fading the rallies. So how am I going to play this? I will look to short the pound whenever the stoch on the 4 hour chart hits the overbought level as long as the general trend of the currency is bearish as indicated by the TLT Trender v2, however, I will use hard stops to prevent losses in the event that the rally continues upward...always a danger when fading rallies.

I'll post another update on the pound within the next week or two.

TLT