Analysis of Thursday's Trades:
1H Chart of GBP/USD Pair
The GBP/USD pair continued its correction on Thursday. We consider the Bank of England meeting results "moderately dovish" while the Federal Reserve's "moderately hawkish." In simple terms, Andrew Bailey stated that the BoE is prepared to continue easing monetary policy, while Jerome Powell indicated that the Fed might pause in December. This creates room for the U.S. dollar to continue its rise.
Recently, the pound has been trading within a restricted range, with its movements best described as "swings." At the same time, these swings can be considered a correction, which suggests that the pound has already corrected. Powell did not emphasize the weak Nonfarm Payrolls report or discuss labor market weakness. Both central banks lowered their rates by 25 basis points.
5M Chart of GBP/USD Pair
Several trading signals were generated in the 5-minute time frame on Thursday, but two out of three appeared shortly before the results of the central bank meetings were announced. Therefore, it was reasonable to trade only the first buy signal near the 1.2913 level. After the signal, the price moved only 20 pips in the desired direction, so the trade closed at break-even via a Stop Loss.
How to Trade on Friday:
In the hourly time frame, the GBP/USD pair has attempted to correct after a month-long decline but failed. We've only observed a semblance of a flat range between 1.2860 and 1.3043. We fully support a continued decline in the pound in the medium term, as we believe this is the only logical outcome. The pound may attempt another correction in the short term, but it needs support, which it did not receive from the Fed or the BoE.
On Friday, novice traders can expect the downtrend to resume, and trading opportunities can be found around 1.2980-1.2993, which the pound failed to breach on Thursday.
In the 5-minute time frame, it is now possible to trade at 1.2791-1.2798, 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. For Friday, no macroeconomic events are scheduled in the UK, while in the U.S., the only report is the University of Michigan Consumer Sentiment Index. A slight uptick in volatility may occur in the afternoon, closer to the evening.
Basic Trading System Rules:
- The strength of a signal is determined by the time it takes to form (whether a bounce or breakthrough of a level). The quicker the formation, the stronger the signal.
- If two or more trades have been made near a level due to false signals, any further signals from that level should be ignored.
- In a flat market, a pair can generate many false signals or none at all. In any case, it's best to stop trading at the first signs of a flat market.
- Trading occurs between the start of the European and middle of the US sessions, after which all trades should be manually closed.
- On the hourly time frame, it's recommended to trade MACD indicator signals only when there is good volatility and a trendline or trend channel confirms a trend.
- If two levels are too close together (5 to 20 pips apart), they should be treated as support or resistance areas.
- After the price moves 20 pips in the intended direction, set the Stop Loss to breakeven.
What's on the Charts:
Support and Resistance Levels: Levels that serve as targets for opening buys or sells. Take Profit levels can be placed around these areas.
Red Lines: Channels or trend lines that indicate the current trend and the preferred trading direction.
MACD Indicator (14,22,3): Histogram and signal line—an auxiliary indicator that can also be used as a source of signals.
Major speeches and reports (always found in the news calendar) can significantly impact currency pair movements. Therefore, it's advised to trade cautiously or exit the market during their release to avoid sharp price reversals against prior movements.
Beginners trading on the forex market should remember that not every trade will be profitable. A clear strategy and money management are the keys to success in long-term trading.
