Analyzing trades on Wednesday:
EUR/USD on 30M chart
On Wednesday, EUR/USD stopped its fall from the previous week and began a new round of correction. Actually, this was its first round of correction. The trend is now well pronounced, and we can see that it is a downtrend. However, at the moment, there is still neither a trendline nor a channel as we are lacking at least two pivot points to build them. Overall, the European currency continues its steady decline. The reasons for this are all the same: the geopolitical situation in Eastern Europe does not improve. The European Union continues to impose devastating sanctions against Russia, which will inevitably lead to a decline in the EU economy. Besides, the monetary policy of the ECB remains ultra-soft. At the same time, the US Federal Reserve has intensified its aggressive stance and is preparing to raise the rate to 2.5% as well as reduce its balance sheet, which involves selling mortgage and Treasury bonds. Europe is also on the verge of an energy crisis, as gas prices have soared recently and could go even higher in the near future, especially if the EU decides to impose a gas embargo against Russia. The euro can only hope for corrective growth.
EUR/USD on 5M chart
On the 5-minute time frame, the movement on Wednesday was far from perfect. All trading signals of the day were formed around the same level - 1.0902. As we remember, this is a sign of a flat movement which did not happen this time. In the first half of the day, the pair made an attempt to continue the downward movement, but later it started a correction. The level of 1.0874 is a new daily low. Now let's take a closer look at trading signals. The first sell signal was formed on a rebound from the level of 1.0902. After its formation, the pair went down by 19 pips. So, novice traders had to set a Stop Loss to breakeven, at which the trade was most likely closed. The next sell signal caused even a weaker movement, so the trade could have been closed with a minimal loss. Then, two buy signals followed but traders could have ignored them. The first two signals turned out to be false. But even if newcomers tried to follow these signals, they wouldn't be able to earn much. The price failed to reach even the nearest target level of 1.0945. Volatility on Wednesday was only 63 pips.
Trading tips on Thursday:
On the 30-minute time frame, the downtrend continues, but it is still impossible to form a channel or a trend line since at least two pivot points are missing. The European currency may continue to fall to its local lows, which are now located around the level of 1.0806. The fundamental and geopolitical background remains extremely challenging for the euro, so we see no reason to expect strong growth of the pair. On the 5-minute chart on Thursday, it is recommended to trade at the levels of 1.0806, 1.0874, 1.0902, 1.0945, 1.0966, 1.0989, and 1.1038. You should place a Stop Loss to breakeven as soon as the price passes 15 pips in the right direction. On Thursday, the European Union will publish a report on retail sales, which is definitely of minor importance right now. In the US, only a couple of insignificant reports are expected. Some Fed officials will also make a statement. The situation with the euro/dollar pair is unlikely to change dramatically.
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.
