Analyzing Friday's trades:
GBP/USD on 1H chart
On Friday, GBP/USD continued to trade with low volatility. We saw a somewhat decent movement on Thursday, but such "disorder" didn't last long. Strangely, the British pound reacted with a decline on Thursday to the stellar GDP report from the US for the second quarter. Overall, the British currency continues to fall as it should, based on almost all types of analysis. However, the market has been reluctant to sell the pair over the past six months, so this time, the fall of the British pound may be short-lived, regardless of the fundamentals and macroeconomics.
On Friday, the US dollar could have strengthened further as the PCE index exceeded monthly and annual forecasts. This means that inflation in the US may accelerate slightly again, practically nullifying the possibility of a Federal Reserve rate cut in September. In addition, the consumer sentiment index from the University of Michigan exceeded market expectations. However, the market deemed it was excessive to work off positive US data with dollar purchases for two consecutive days.
GBP/USD on 5M chart
In the 5-minute time frame on Friday, the pound sterling bounced several times from the 1.2848-1.2860 area, but the entire movement was flat. Therefore, we don't even consider these bounces as signals. Novice traders could have opened a long position, which they could even close without losses, but trading in a low-volatility flat made no sense.
Trading tips on Monday:
In the hourly time frame, GBP/USD finally has a chance of a minor decline. The pair has breached the ascending trendline, so we might see some correction. Ideally, the pound should drop by at least 400-500 pips. The market has processed all the bullish factors about three times, the dollar is undervalued, and the Bank of England may start lowering its rates as early as next week. The British currency has more reasons to fall than to rise.
On Monday, novice traders may trade within the range of 1.2848-1.2860, but there is a high probability that market volatility will be very low again.
The key levels to consider on the 5M timeframe are 1.2605-1.2633, 1.2684-1.2693, 1.2748, 1.2791-1.2798, 1.2848-1.2860, 1.2913, 1.2980-1.2993, 1.3043, 1.3102-1.3107, and 1.3145. On Monday, no significant events are planned in the UK and the US. Later in the week, many important events will occur, but they do not guarantee a trend and a strong market reaction.
Basic rules of a trading system:
1) The strength of a signal is determined by the time it took for the signal to form (bounce or level breakthrough). The shorter the time required, the stronger the signal.
2) If two or more trades around a certain level are initiated based on false signals, subsequent signals from that level should be ignored.
3) In a flat market, any currency pair can produce multiple false signals or none at all. In any case, it's better to stop trading at the first signs of a flat market.
4) Trades should be opened between the start of the European session and mid-way through the U.S. session. All trades must be closed manually after this period.
5) In the hourly time frame, trades based on MACD signals are only advisable amidst substantial volatility and an established trend, confirmed either by a trendline or trend channel.
6) If two levels are too close to each other (from 5 to 20 pips), they should be considered as a support or resistance zone.
7) After moving 15 pips in the intended direction, the Stop Loss should be set to break-even.
What the charts show:
Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them.
Red lines represent channels or trend lines that depict the current trend and indicate the preferred trading direction.
The MACD (14,22,3) indicator, encompassing both the histogram and signal line, acts as an auxiliary tool and can also be used as a source of signals.
Important speeches and reports (always noted in the news calendar) can profoundly influence the price dynamics. Hence, trading during their release calls for heightened caution. It may be reasonable to exit the market to prevent abrupt price reversals against the prevailing trend.
Beginners should always remember that not every trade will yield profit. Establishing a clear strategy, coupled with effective money management, is key to long-term success in trading.
The material has been provided by InstaForex Company - www.instaforex.com #
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