Analyzing Wednesday's trades:
EUR/USD on 30M chart
On Wednesday, the EUR/USD pair was only active for half an hour when the US inflation report was published. Despite the crucial report, the pair's volatility was 65 points. We must admit that volatility has been declining in recent weeks and is now at an "average" level. Low volatility is a problem for traders since weak movements bring much less profit. Moreover, there has been a blatant flat for several weeks now, which in itself is not the best market condition. In general, this is not the best time for trading.
As already mentioned, during the release of the US inflation report, the dollar dropped by 60 points but over the next few hours it offset most of its losses. US inflation slowed to 4.9%, which essentially has no crucial value for traders. The EUR/USD picture has not changed, so we can say that the market reacted quite logically to the report. It is still necessary to wait for increased volatility and the continuation of the trend-driven movement.
EUR/USD on 5M chart
There were few trading signals on the 5-minute chart. First, the pair consolidated below the 1.0965-1.0980 area, afterwards it managed to fall by 10 points. The short position should have been closed manually before the inflation report, as a sharp reversal was possible, which we eventually saw. Or, set a Stop-Loss at breakeven. But at that time, the pair had only passed 10 points to the downside, so it was better to close the position. Then the pair consolidated above the mentioned area and moved in the right direction for 20 points, which was enough to set a Stop-Loss at breakeven, where the long position was closed. As already mentioned, it is challenging to count on profit with such low volatility.
Trading tips on Thursday:
On the 30-minute chart, the pair started a new downward movement within the overall flat. Even essential macro data cannot pull the pair out of the flat. Flat + low volatility = lack of profit. Therefore, beginners should trade with extreme caution at this time or refrain from entering the market. On the 5-minute chart, consider levels 1.0792, 1.0857-1.0867, 1.0920-1.0933, 1.0965-1.0980, 1.1038, 1.1070, 1.1132, 1.1184, 1.1228. As soon as the price passes 15 pips in the right direction, you should set a Stop Loss to breakeven. On Thursday, the US will publish reports on producer prices and jobless claims. Minor data that is unlikely to provoke even a weak reaction. In the eurozone, a speech by ECB Vice President Luis de Guindos is scheduled, but it will take place late in the evening.
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.
