Analyzing trades on Thursday
EUR/USD on 30M chart
Volatility on EUR/USD was extremely high on Thursday, but we warned you about it yesterday when mentioning the US inflation report. We said that volatility could increase greatly, and it was impossible to predict the price movement. Yesterday, no one could have predicted such a movement. As soon as the report was published, the US currency began to grow rapidly and was rising for about an hour. After that, it plunged even more and ended up at the level of 1.1490. As a result, the day's volatility amounted to 120 pips, and the market's reaction to the inflation data turned out to be absolutely ambiguous. As for the trend, it is quite difficult to determine it now. Earlier, the pair overcame the ascending trend line and on Thursday, it retested the high of the previous week. Yet, the price failed to break through the level of 1.1483 from where it rebounded for the second time. Therefore, there is still a possibility of a downtrend.
EUR/USD on 5M chart
On the 5-minute time frame, the movement looks quite impressive. Importantly, the pair tested all the key levels of Thursday with great accuracy in most cases. Let's analyze all the trading signals. The first buy signal was formed near the level of 1.1387. The rebound from it was not too accurate, and the price developed strong growth. Novice traders could have opened long positions there. At the same time, following the CPI report, the US dollar was supposed to rise instead of falling. Therefore, the risks were quite high in this trade. If you had opened a trade following this signal, you could have earned a lot earn since the signal was formed at the very beginning of the upward movement. The next buy signal appeared when the price broke through the level of 1.1449. However, while it was being formed, the pair had already advanced by 85 pips, lacking just a few pips to reach the next level. In case with long positions, you should have simply kept them open. Otherwise, it was clearly not worth opening new positions. The next buy signal was formed when the price broke through the 1.1478-1.1483 area. There was no point in opening long positions at this signal since the quote had already jumped by more than 100 points. A sell signal that was generated when the price went back below 1.1478-1.1483 should have been used to close long positions, but it was ok to open short once as well. The price stopped near the 1.1449 level and rebounded from it. So traders could have gained a profit here as well.
Trading tips on Friday
On the 30-minute time frame, the ongoing upward trend remains purely formal. The price failed to break through the level of 1.1483 on Thursday although the chances were very slim. At the moment of testing this level, the price had already risen by 120 pips, which is a lot for the euro. The further trajectory of the pair depends on whether it will manage to break through this level. On the 5-minute chart on Friday, it is recommended to trade at the levels of 1.1387, 1.1449, 1.1478-1.1483, 1.1513-1.1524-1.1535, and 1.1571. As soon as the price moves by 15 pips in the right direction, you should set a Stop Loss to a breakeven point. On Friday, there will be absolutely nothing to pay attention to either in the United States or in the European Union. The report on consumer sentiment from the University of Michigan is the only significant event traders may focus on, but it is unlikely to provoke any market reaction.
Basic rules of the trading system
1) The strength of the signal is determined by the time it took the signal to form (a rebound or a breakout of the level). The quicker it is formed, the stronger the signal is.
2) If two or more positions were opened near a certain level based on a false signal (which did not trigger a Take Profit or test the nearest target level), then all subsequent signals at this level should be ignored.
3) When trading flat, a pair can form multiple false signals or not form them at all. In any case, it is better to stop trading at the first sign of a flat movement.
4) Trades should be opened in the period between the start of the European session and the middle of the US trading hours when all positions must be closed manually.
5) You can trade using signals from the MACD indicator on the 30-minute time frame only amid strong volatility and a clear trend that should be confirmed by a trendline or a trend channel.
6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered support and resistance levels.
On the chart
Support and Resistance Levels are the levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are channels or trend lines that display the current trend and show in which direction it is better to trade now.
The MACD indicator (14, 22, and 3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend patterns (channels and trend lines).
Important announcements and economic reports that can be found on the economic calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommend trading as carefully as possible or exiting the market in order to avoid sharp price fluctuations.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management is the key to success in trading over a long period of time.