Analysis of Monday trades:
GBP/USD 30M chart
On Monday, the GBP/USD pair was even less volatile than EUR/USD. While the euro moved sideways, the pound sterling barely moved at all, with a mere volatility of 42 pips. Yet, given the absence of any significant economic reports or events throughout the day that might spark traders' interest, this sluggish behavior was to be expected. The end result was a largely uneventful Monday.
Currently, the GBP/USD market lacks a clear directional bias. There's neither a discernible trend line nor a trading channel. The flat trading experienced on Monday would have disrupted any trend line or channel that might have been in place. The market seems to be in a state of anticipation, awaiting the Bank of England upcoming meeting as well as several key data releases from the US. These include the ISM indices, labor market figures, and unemployment data. While it is plausible that most of these indicators will align with forecasted values, leading to a rather unexciting week, the importance of these events suggests a potential for a week filled with market activity and volatility. Thus, despite a slow start, traders should remain on their toes.
GBP/USD 5M chart
On Monday, there were no trading signals formed on the 5-minute timeframe. The pair traded around the 1.2848-1.2860 area all day. Twice, the price dipped below this range, which could mislead novice traders. However, in both cases, it was possible to close the sell position with minimal losses. The second sell signal could even have been disregarded, as by then it was clear that the day would be characterized by a flat market.
Trading strategy for Tuesday:
On the 30-minute timeframe, the GBP/USD pair may continue its downward trend. However, with a multitude of fundamental and macroeconomic events lined up for the week, the pair could experience significant volatility. We favor a continued fall in the pound sterling, as we maintain that it is significantly overbought and unjustifiably expensive. On the 5-minute timeframe tomorrow, the key levels can be found at 1.2597-1.2605, 1.2653, 1.2688, 1.2748, 1.2801, 1.2848-1.2860, 1.2913, 1.2981-1.2993, 1.3043, and 1.3107. If the price moves 20 pips in the right direction after the trade is opened, set the stop loss at breakeven.
Tuesday's schedule includes the release of only one indicator in the UK, the Manufacturing Sector Business Activity Index (final estimate for July). In the US, the more significant ISM Index and JOLTS report will be released. These two reports should be the focus of attention.
The basic rules of a 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, 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.
Beginning traders 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.
