Trade review for Friday:
1H chart of the GBP/USD pair
The GBP/USD pair showed a small decline on Friday that did not affect the overall technical picture or the local uptrend. Overall, sterling continues to rise confidently, and the macroeconomic backdrop has recently been noticed by the market. Recall that UK unemployment unexpectedly fell by 0.2% and inflation rose more than forecast. These two reports suggest the Bank of England will raise the key rate at the next meeting in early November. On Friday, the UK released business-activity and retail-sales reports. PMIs for services and manufacturing came in higher than expected, giving sterling room to rise. However, the retail-sales report spoiled the picture: retail sales fell 0.4% in September versus a -0.1% forecast. Thus the pound corrected slightly at the end of the week, but the descending trend line has been overcome, so the pair's uptrend may resume soon. Remember, sterling still has many technical reasons to rise, at least toward 1.3650. The market has not yet priced in the BoE's future tightening (which is likely to happen).
5M chart of the GBP/USD pair
On the 5-minute TF, three trade signals formed on Friday. During the day, price first reclaimed the 1.3380–1.3386 area, then bounced from below at least four times. Because volatility was low, we did not see a significant drop. However, the decline could continue at the start of the new week.
How to trade on Monday:
On the hourly TF, GBP/USD continues to form a new uptrend. The pound has shown, and continues to show, greater resilience versus the dollar, so it now has better chances of an upward trend. The technical picture on almost all charts supports sterling's rise. The fundamental and macro backdrop, along with the dollar's overbought condition, also supports GBP/USD's rise.
On Monday, novice traders can open new short positions with targets of 1.3319–1.3331 if price bounces off the 1.3380–1.3386 area again. Consider long positions with targets of 1.3456–1.3476 if price holds above the 1.3380–1.3386 area.
On the 5-minute TF you can trade the levels 1.3043, 1.3096–1.3107, 1.3175–1.3180, 1.3259–1.3267, 1.3319–1.3331, 1.3380–1.3386, 1.3456–1.3476, 1.3587–1.3598, 1.3631–1.3641. No important events or releases are scheduled in the UK or the US on Monday. Therefore, traders will have nothing to react to and should trade only on technical factors in a low-volatility environment.
Key Rules of the Trading System:
- The strength of a signal is determined by the time it takes to form the signal (rebound or breakout). The less time taken, the stronger the signal.
- If two or more trades were opened at a certain level based on false signals, all subsequent signals from that level should be ignored.
- In a range (flat), any pair can generate many false signals or may not produce any at all. Technical levels may be disregarded.
- On the hourly timeframe, trading signals from the MACD indicator should be acted upon only when volatility is high, and a trend line or trend channel confirms the trend.
- If two levels are too close together (within 5-20 pips), treat them as a support or resistance area.
- After moving 15 pips in the right direction, a stop-loss should be set to break even.
What to Look for on the Charts:
Price levels (areas) of support and resistance serve as targets for opening buy or sell trades or as sources of signals.
Red lines indicate channels or trend lines that show the current trend and the preferred trading direction.
The MACD indicator (14,22,3) — the histogram and signal line — is an auxiliary indicator that can also provide signals.
Important speeches and reports (listed in the news calendar) can significantly influence currency pair movements. Therefore, during their release, traders should approach trading with utmost caution, or exit the market to avoid sudden reversals against the preceding move.
Beginner forex traders should remember that not every trade can be profitable. Developing a clear strategy and practicing money management are key to long-term success in trading.
