Analysis of Wednesday's trades:
30M chart of GBP/USD
On Wednesday, GBP/USD retraced up to the ascending trend line, tested it, and rebounded from it. The price broke through the trend line a day earlier. However, it became clear in a couple of hours that it had been a false breakout. Therefore, it should have been ignored. As it turned out, it was the right approach because the trend line was able to withstand pressure on Wednesday, thus maintaining bullish bias. Overall, the pound fell by 120 pips. As a reminder, the sterling showed unexpected growth by 160 pips a day earlier, surprising market participants. On Wednesday, when the United Kingdom presented a fresh inflation report, the pair plunged. Moreover, the fall came exactly at the time when the report was published, meaning it was a clear reaction. Although inflation rose to 6.2% in February, it was more of a positive factor for the British economy than a negative one because the higher the inflation, the greater is the chance of monetary policy tightening. Anyway, either the market had decided otherwise or a rise in inflation had already been priced in, but the pound tumbled on Wednesday.
M5 chart of GBP/USD
In the M5 time frame, the technical picture looked very nice on Wednesday. The price successfully tested all the key levels on its way, and strong trading signals were produced near them. So, the new key level formed at 1.3174. The first sell signal was made when the price broke through 1.3272. The quote then broke through 1.3241 and rebounded from it. Later, it also broke through 1.3210 and rebounded from it. All that time, a single sell trade should have been opened at around 1.3272. That trade could have been closed just manually because not a single buy signal was made during the day. It could have been done by the close of the trading day. In such a case, the sell trade would have brought traders some 60 pips of profit. Volatility on Wednesday totaled 124 pips. As you can see, high volatility + trend movement = profit.
Trading plan for Thursday:
In the 30M time frame, the pair continues its bull run. It tried to break through the trend line one more time but failed. Consolidation of the price below the trend line may trigger a fall of the pound. In spite of being bullish recently, the quote is still struggling to show steady and strong growth. The US dollar now has more reasons for being bullish. On Thursday, the target levels in the 5M time frame are seen at 1.3082, 1.3110-1.3126, 1.3174, 1.3210, 1.3241, 1.3272, and 1.3310. A stop-loss order should be set at the breakeven point as soon as the price passes 20 pips in the right direction after a trade has been opened. No important macro events are to unfold in the US and the UK on Thursday. So, beginner traders will have nothing to focus on during the day. However, volatility is likely to remain high, some 80-100 pips. All in all, a flat market is the last thing traders want to see on Thursday.
Basic principles of the trading system:
1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal.
2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored.
3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading.
4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually.
5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel.
6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.
How to interpret charts:
Support and resistance levels can serve as targets when buying or selling. You can place Take Profit near them.
Red lines are channels or trend lines that display the current trend and show which direction is better to trade.
MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross. This indicator is better to be used in combination with trend channels or trend lines.
Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement.
Beginner traders should remember that every trade cannot be profitable. The development of a reliable strategy and money management is the key to success in long-term trading.
