Analysis of Wednesday's Trades
1H Chart of the GBP/USD Pair
On Wednesday, the GBP/USD pair continued its downward movement as if nothing had happened. The day before, the price broke through the previous trendline, but we warned that breaking a trendline is not a strong signal in near-flat market conditions. As a result, the price broke through that line, and the UK inflation report was released, causing the price to calmly head back down. The inflation report, of course, was the true reason for the pound's decline yesterday. All types of inflation in September fell much more than forecasted. This forces the Bank of England to resume monetary policy easing soon and lower rates faster than the market expected. The market seems to haven't even begun to price in a rate cut in the UK yet. Therefore, any dovish news is another reason to sell the pound sterling. The price is now knocking on the door of the 1.2980 level for the third time, and it will likely break through it today.
5M Chart of the GBP/USD Pair
On Wednesday, the price formed two trading signals in the 5-minute time frame. First, it broke through the 1.3043 level and bounced off the 1.2988-1.2993 area. The first signal should have been executed immediately after the release of the UK inflation report. The report was unequivocal, so selling could have been done without waiting for the 1.3043 level to be broken. The second signal also allowed for profit, although the price didn't quite reach the nearest target level.
How to Trade on Thursday:
The GBP/USD pair broke the upward trend in the hourly time frame and continues to fall. The U.S. dollar has begun its long-awaited growth, but caution is advised with selling as the pair haven't even attempted a correction for the past three weeks. However, no signs indicate that the price is ready to move into a correction. We fully support the pair's decline in the medium term as we believe it's the only logical outcome.
On Thursday, the pair can easily continue its downward movement. A break below the 1.2980 level will provide another opportunity to sell the British pound.
In the 5-minute time frame, you can currently trade using the following levels: 1.2848-1.2860, 1.2913, 1.2980-1.2993, 1.3043, 1.3102-1.3107, 1.3145-1.3167, 1.3225, 1.3272, 1.3365, 1.3428-1.3440. On Thursday, no important data releases are scheduled in the UK, while relatively important reports on industrial production and retail sales will be published in the U.S. If the euro continues to fall today due to the European Central Bank meeting, the pound may follow suit.
Basic Rules of the Trading System:
- The strength of a signal is determined by the time it takes to form (bounce or break through a level). The less time it takes, the stronger the signal.
- If two or more trades were opened near a particular level based on false signals, all subsequent signals from that level should be ignored.
- In a flat market, any pair can generate a lot of false signals or none at all. In any case, it's best to stop trading at the first signs of a flat market.
- Trades should be opened during the period between the start of the European session and the middle of the US session, after which all trades should be manually closed.
- In the hourly time frame, it's preferable to trade based on MACD signals only when there is good volatility and a trend confirmed by a trendline or trend channel.
- If two levels are very close to each other (between 5 and 20 pips), they should be treated as a support or resistance zone.
- When moving 20 pips in the intended direction, a Stop Loss should be set to breakeven.
What's on the Charts:
Support and Resistance Price Levels: These levels serve as targets when opening buy or sell positions. They can also be used as points to set Take Profit levels.
Red Lines: These represent channels or trend lines that display the current trend and indicate the preferred trading direction.
MACD Indicator (14,22,3): The histogram and signal line serve as an auxiliary indicator that can also be used as a source of trading signals.
Important Speeches and Reports (always found in the news calendar) can significantly impact the movement of a currency pair. Therefore, trading should be done with maximum caution during their release, or you may choose to exit the market to avoid a sharp price reversal against the preceding movement.
For Beginners Trading on the Forex Market: It's essential to remember that not every trade will be profitable. Developing a clear strategy and practicing money management is key to achieving long-term success in trading.
