Analyzing trades on Thursday
GBP/USD on 30M chart
GBP/USD was trading sideways on Thursday, showing a clear flat movement. The daily volatility was only 57 pips, which is very low for the pound sterling. The same is true for the euro/dollar pair. Market activity declined by the end of the week due to the lack of important drivers. However, trading activity on the pound sterling was high on Tuesday and Wednesday, although these overly volatile movements should not have happened at all. In fact, both movements were triggered by the same UK inflation report. First, the market reacted in advance and then returned to its previous position, showing unpredictable movements on the day the report was published. This happens quite rarely in the foreign exchange market, but it still happens sometimes. The price has also settled below the ascending trendline, so the uptrend has been reversed. But at the same time, the price failed to consolidate above the level of 1.3210, although it tested this level from the bottom several times. Thus, it looks like the GBP/USD pair will need to wait for the important news which can provoke new strong movements.
GBP/USD on 5M chart
On the 5-minute time frame, the technical picture looked rather bad on Thursday. The pair's trajectory resembled the movements of the euro/dollar pair. However, the pound had more levels to trade at in the given range. Therefore, there were more signals, but most of them were false. Let's try to figure out how the pair should have been traded on Thursday. The first sell signal was formed near the level of 1.3174, which later turned into the level of 1.3156. Right after the breakout of this level, the price reversed to the upside and closed above1.3174, having formed a buy signal. Unlike the first one, this signal turned out to be strong, but the upward movement itself was weak. Therefore, the first trade brought losses while the second one - a small profit. Traders could also have used a rebound from the level of 1.3210 since the sell signal was strong. Yet, just like in the second case, the downward movement was weak. Nevertheless, the pair tested the level of 1.3174, and this was a good point to take profit when closing a short position. Beginners could also have opened a long position on a rebound from 1.3174. But it was not possible to earn here since the pair failed to return to the level of 1.3210. As a result, we had one losing trade, two profitable trades, and one with a zero result.
Trading tips on Friday
On the 30-minute time frame, the pair consolidated below the level of 1.3210 and below the trendline. Therefore, before returning and settling above the level of 1.3210, we expect the British pound to fall. At the same time, we would like to stress that the pair can spend several days either in a flat channel or in a low-volatility movement, which is almost the same thing. On the 5-minute chart on Friday, it is recommended to trade at the levels of 1.3082, 1.3110-1.3126, 1.3156, 1.3210, 1.3241, and 1.3272. When the price passes 20 pips in the right direction after opening a trade, you should set a Stop Loss to breakeven. There are no major events scheduled for Friday in the US. The UK will release the retail sales report, which in the current circumstances is unlikely to cause a strong market reaction. Volatility on Friday may remain low, but much will depend on the geopolitical background.
Basic rules of the trading system
1) The strength of the signal is determined by the time it took the signal to form (a rebound or a breakout of the level). The quicker it is formed, the stronger the signal is.
2) If two or more positions were opened near a certain level based on a false signal (which did not trigger a Take Profit or test the nearest target level), then all subsequent signals at this level should be ignored.
3) When trading flat, a pair can form multiple false signals or not form them at all. In any case, it is better to stop trading at the first sign of a flat movement.
4) Trades should be opened in the period between the start of the European session and the middle of the US trading hours, when all positions must be closed manually.
5) You can trade using signals from the MACD indicator on the 30-minute time frame only amid strong volatility and a clear trend that should be confirmed by a trendline or a trend channel.
6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered support and resistance levels.
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 channels or trend lines that display the current trend and show in which direction it is better to trade now.
The MACD indicator (14, 22, and 3) 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 patterns (channels and trendlines).
Important announcements and economic reports that can be found on the economic calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommend trading as carefully as possible or exiting the market in order to avoid sharp price fluctuations.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management is the key to success in trading over a long period of time.
