Analyzing Wednesday's trades:
GBP/USD on 30M chart
The GBP/USD pair tumbles lower on Wednesday. The key events of the day were the speeches of Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey at the same economic forum in Sintra. Bailey promised that the BoE would continue to raise interest rates until significant inflation slowdown is achieved, implying at least two more rate hikes. Powell also effectively pledged to raise rates two more times, although inflation in the US is much lower than in the UK. We believe that the market is gradually approaching the point where the euro and the pound will lose their advantage. One of the most important factors we consider is the market's reaction to the BoE's recent meeting, when the rate was unexpectedly raised by 0.5%, but there was no new wave of pound purchases.
The pair also settled below the ascending trendline, which is a technical signal for a trend reversal. Take note that for several months now, we have been expecting a significant decline in the pound, which has not yet started due to the persistence of buyers who are pushing the pound up purely out of momentum.
GBP/USD on 5M chart
Speaking of trading signals, everything was fine on the 5-minute chart. The quotes started to fall during the European session, which was a positive signal for us. At the beginning, the pair falsely rebounded from the level of 1.2690 but managed to move up by only 10 pips, which was not enough to set the stop-loss at breakeven. It then consolidated below the specified level, which should have been traded with a short position. This was somewhat risky as the speeches of Powell and Bailey were scheduled to start just an hour later, but traders still had time to set the stop-loss at breakeven and protect themselves. As a result, the pair dropped to the level of 1.2629 and surpassed it. Short positions could be manually closed below this level as the evening approached. The profit from this trade was 60 pips, while the loss from the first trade was 25 pips. The overall profit is not significant, but it is a profit.
Trading tips on Thursday:
As seen on the 30M chart, the pair has been falling for nine consecutive trading days. It only managed to break through the important level of 1.2690 on Wednesday, which means it can fall further. This disrupted the uptrend, so we have technical grounds to expect the pair's succeeding decline, which remains heavily overbought and excessively expensive compared to the dollar. The key levels on the 5M chart are 1.2457, 1.2499, 1.2538, 1.2597, 1.2629, 1.2690, 1.2757, 1.2801, 1.2860, 1.2913, 1.2981. When the price moves 20 pips in the right direction after opening a trade, a stop loss can be set at breakeven. There are no important events lined up in the UK, while Powell will deliver another speech. The dollar grew after the Fed chair's speech. The GDP reports for the first quarter (final value) and initial jobless claims will also be published.
Basic trading rules:
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 read charts:
Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels 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.
Beginners should remember that every trade cannot be profitable. The development of a reliable strategy and money management are the key to success in trading over a long period of time.
