Analysis of Wednesday trades:
EUR/USD 30M chart
The EUR/USD currency pair declined sharply in the morning Wednesday trade, but it managed to recover soon later in the day. Just yesterday, we highlighted the potential market volatility due to key business activity reports. The reaction, however, wasn't as intense as one might have expected. The Euro shed about 50 pips within a mere 5-minute span in the morning. Now, 50 pips might sound like a lot, but it's somewhat middling in the grand scheme of things.
This movement was largely prompted by disappointing business activity data. While manufacturing sectors in both Germany and the EU showed modest improvements (though still lingering below the pivotal 50.0 benchmark), the service sectors fell short, coming in significantly under projections. These two reports were the main culprits behind the Euro's dip. With this, the bearish trend for the European currency remains intact, suggesting we might see it drift further downward.
EUR/USD 5M chart
On the 5-minute time frame on Wednesday, the movements were good, offering beginner traders an opportunity to profit. Regrettably, there wasn't a chance to act on the initial sell signal. Moreover, opening a short position after a 50-pip drop in just 5 minutes wouldn't have been prudent, regardless of the trading signals. However, the subsequent buy signal around the 1.0835 mark was actionable. By day's end, the pair had returned to its starting positions around the 1.0871 level, which was the ideal point to close the trade. The profit stood at about 20 pips. It might seem modest, but the overall day's volatility wasn't exceptionally high either.
Trading plan on Thursday:
On the 30-minute time frame, the pair continues its downward trend. From our perspective, the decline of the Euro remains the most justified and logical course of action, irrespective of the macroeconomic backdrop. And today, that backdrop was particularly unfavorable for the Euro. For the 5-minute timeframe tomorrow, the key levels are 1.0673, 1.0733, 1.0761, 1.0835, 1.0871, 1.0901-1.0904, 1.0936, 1.0971-1.0981, 1.1011, 1.1043, and 1.1091. Upon moving 15 pips in the favorable direction, a break-even Stop Loss can be set. On Thursday, no significant events are planned in the European Union, while in the US, reports on unemployment benefit claims and durable goods orders are scheduled for release. The latter report could trigger a strong reaction if its figures significantly deviate from forecasts.
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, 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.
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.
