Analysis of Tuesday's trades
30-minute chart
On Tuesday, the pound/dollar pair continued rising after a rebound from 1.3173 logged a day earlier. By the end of the trading day, it approached the level of 1.3268, but failed to test it. Thus, the pair continued hovering within the sideways channel of 1.3173-1.3268. Although last week, the pair left the range, most time was trading within it. That is why, the pound/dollar pair goes on trading flat like the euro/dollar pair. On Tuesday, neither the US nor the UK published macroeconomic reports that could have affected the market situation. Against this background, the volatility of 60 pips is a really good performance. If the price declines from the upper limit of the range, this will signal about a movement to the lower limit.
5-minute chart
On the five-minute chart, only during the European session, the pound/dollar pair showed a rise, adding 40 pips in 25 minutes. The rest of the trading day, it was trading sideways. Such a sharp change in the pair's behavior confused beginning traders. The fact is that after the 40-pip increase, traders received a buy signal since the price broke 1.3241 that is the highest level logged on Monday. Thus, newbies were planning to open long positions. However, in the following 5 hours, it became clear that the pair would hardly break the nearest targeted level of 1.3268. Notably, to touch it, the price should have grown by just 27 pips. That is why traders closed the positions by themselves with zero profit. All other signals near 1.3241 should have been ignored.
How to trade on Wednesday:
At the moment of writing the article, the pair was trading within the range of 1.3173/1.3268 on the 30-minute chart. Since this trading week is the last one before Christmas, the pair is likely to remain within the channel in the next few days. If the price manages to consolidate above the range, the pound sterling may surge to 1.3374. If the price drops from 1.3268, the British pound may resume falling to the lower limit of the range at 1.3173. On the five-minute chart, there are the following important levels: 1.3172, 1.3241, 1.3268, 1.3310. Traders are recommended to focus on these levels when making trade decisions on Wednesday. The price either drops from these levels or upwardly breaks them. The take profit order should be placed 40-50 pips from the point traders enter the market. On the five-minute chart, the nearest levels could be used as targets. The stop loss order could be placed at a distance of 20 pips. On December 22, the UK and the US are expected to disclose their GDP reports for the third quarter. Thus, the market volatility will hardly be strong.
Key rules of a trading system:
1) To evaluate the strength of a signal, traders should know the time it took to generate the signal (rebound or a break of a level). The less time it took, the stronger the signal was.
2) If two or more trades were opened near a certain level on false signals (a take profit was not executed or the nearest target level remained intact), then all subsequent signals from this level should be ignored.
3) When trading flat, any pair can form a lot of false signals or not form them at all. In any case, it is better to stop trading at the first signs of a flat movement.
4) Trades could be opened in the time period between the beginning of the European session and the middle of the American session, when all positions should be closed manually.
5) On a 30-minute chart, signals from the MACD indicator can be taken into account only if there is good volatility and a trend, which is confirmed by a trend line or a trend channel.
6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered as a support or resistance area.
What we see on the chart:
Support and resistance levels are targeted levels when opening buy or sell positions. A take profit order could be placed near them.
Red lines are channels or trend lines that display the current trend and show in which direction it is preferable to trade now.
The MACD indicator is a histogram and a signal line, the intersection of which provides signals to enter the market. It is recommended to use it in combination with trend constructions (channels, trend lines).
Important speeches and reports (you can always find them in the macroeconomic calendar) may greatly influence the movement of a currency pair. Therefore, during the publication of this information, 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 not every trade brings profit. Developing a clear strategy and money management are the key to success in trading for a long period of time.