Analyzing trades on Thursday:
GBP/USD on 30M chart
On Thursday, GBP/USD was trading in a very confusing way. It was hard to define a clear trajectory of the pound. It was trying to continue an upside correction but at the same time, it made an attempt to resume a downtrend. There were just 70-80 pips left for the pair to reach its 37-year low. Therefore, the decline is likely to continue. The price is also holding below the descending channel which clearly points to the continuation of the bearish trend. In addition, all technical indicators confirm the downtrend. While the UK had no major economic news, in the US, Jerome Powell delivered a speech. The Fed Chair outlined once again that it was crucial to continue the fight against inflation. This comment implies a further rate hike which is widely expected by the market. This is great news for the US dollar. But even without Powell's words, the greenback has been growing by leaps and bounds.
GBP/USD on M5 chart
We can clearly see the hectic movements of the pair on the 5-minute time frame. The pair changed the direction several times, and there were even signs of a flat movement. So, beginners could find it hard to trade at his time. Let's analyze trading signals to see how the pair could have been traded on Thursday. At first, the price settled below 1.1498 and then bounced off this level twice. Beginning traders could have opened short positions following this signal. But the downward movement was canceled, and the pair did not pass these 20 pips. So, the trade closed with a loss at the first buy signal when the quote broke through the level of 1.1498. Although the buy signal was strong, the nearest target was too far away, so the trade should have been closed manually. This trade could have brought us around 20-30 pips. Later, the pound was affected by the ECB meeting which is strange as the monetary policy of the EU has nothing to do with the pound. The next signal to sell was formed when the price settled below 1.1498. This signal turned out to be false. However, the price went down by 20 pips so that the trade was closed at breakeven following a triggered Stop Loss. All in all, two false signals were formed near the level of 1.1498. This means that all other signals formed near this level should have been ignored.
Trading tips on Friday:On the 30-minute time frame, the pound/dollar pair continues to trade within the downtrend. The price has already tested its 37-year low, so it is likely to break through it in the near term. The descending channel also stays relevant on the 30-minute chart, and the price is holding below it. So, from the technical viewpoint, there are no conditions for the pound to rise. On the 5-minute chart on Friday, it is recommended to trade at the level of 1.1411, 1.1443, 1.1498, 1.1560, and 1.1601. As soon as the price passes 20 pips in the right direction, set s Stop Loss to breakeven. Neither the UK nor the US has any important economic reports on Friday. Yet, the news background is not so important now as the pound is steadily trading within the downtrend and is set to continue its fall.
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 trendlines).
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.