Hourly chart of the GBP/USD pair
The GBP/USD pair on Monday, January 4, slowly moved upward for half a day, renewed its 2.5-year highs, and then it sharply fell. The pound was down 150 points. However, despite such a strong drop in the pair's quotes, we would not jump to conclusions about the beginning of a new downward trend. If you look at the 4-hour timeframe, you can clearly see that the pair regularly moves 300-400 points in different directions for short periods of time in the last couple of months. We call this phenomenon "high volatility swing". Thus, it is possible that it just started another downward spiral of these "swings" at this time. In any case, novice traders are advised to trade in accordance with the strategy. Since the pair's quotes have settled below the upward trend line today, and the trend has changed to a downward trend. The red circle in the chart shows the signal by which to open short positions. Those who followed our recommendations are currently in profit of about 60 points. We believe this is an excellent result and sell trades can be closed. Next, you should wait for a correction and a new sell signal, this time from the MACD.
Fundamentally, there is still absolutely nothing to say now. More precisely, there is plenty of important and interesting information, but most of the traders continue to ignore it. For example, why did the pound (together with the euro) fall today? It is logical to assume that because of some news from the US. But America did not report anything interesting. Meanwhile, another wave of coronavirus is raging in the UK, this time of a new strain. The authorities are going to tighten the quarantine, and the British economy will again be under a massive blow. However, could this news have an impact on the pound? It could, but why exactly today, when 50-55,000 new cases of the disease have been recorded every day in Britain for almost a week, and a new strain has already been known a couple of weeks ago? Thus, we do not link Britain's latest news with the pound's decline. Naturally, the index of business activity in the UK manufacturing sector did not have any impact on the course of trading.
No major releases scheduled in the UK on Tuesday, January 5, and only the ISM Manufacturing PMI will be released in the US. Traders' attention is slowly switching again to reports on the number of cases of COVID-2019. In America, the epidemiological situation remains extremely dire too.
Possible scenarios for January 5:
1) Buy orders have lost their relevance, since the pair's quotes have settled below the upward trend line. Thus, in order to be able to consider long positions, you should wait for a new upward trend or the end of the downward trend. This scenario is not expected in the next 24 hours.
2) Selling became relevant as traders crossed the trend line. Thus, beginners could open sell orders upon a signal to break the trend line. At the moment, they can already close these trades at a profit of 50-60 points, because if you wait for the MACD indicator to turn to the upside, you can lose half of the profit - the indicator may be very late with the signal.
On the chart:
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.
Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.
The MACD indicator consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).
Important announcements and economic reports that you can always find in the news calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommended trading as carefully as possible or exit the market in order to avoid a sharp price reversal.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
