Analysis of Monday's Trades:
1H Chart of GBP/USD Pair
The GBP/USD pair traded lower on Monday despite the absence of any local reasons for the decline. It is worth noting that the pound has a higher resistance against the U.S. dollar, which is why it has mostly been stagnating rather than falling in recent weeks. However, we believe this will not last long. Today, the price approached the area of the last two local lows for the third time. Thus, this area could be breached as early as today, which would indirectly signal the continuation of the downtrend. The pound also has no reason to rise in the medium term, as macroeconomic data from the UK are no better than those from the U.S. The only factor helping the British currency to fall more slowly than the euro is the monetary policy of the Bank of England, which is wary of accelerating inflation and, therefore, hesitant to lower the key interest rate. However, in our opinion, this factor will not prevent the further selling of British currency for long.
5M Chart of GBP/USD Pair
Monday provided a decent sell signal in the 5-minute time frame around the 1.2913 level. During the U.S. trading session, the price dropped to the important zone of 1.2848-1.2860, which it has not yet managed to break. However, we believe that this breakthrough will occur, possibly even today. Therefore, selling remains far more relevant than buying.
How to Trade on Tuesday:
The GBP/USD pair remains inclined toward a decline in the hourly time frame. In recent weeks, we have observed something resembling a flat movement between the levels of 1.2860 and 1.3043. However, this range seems to be nearing its end. We fully support the pound's decline in the medium term, considering it the only logical outcome. In the near term, the pound may attempt another correction, but for this to occur, it needs support—which it has not received from the Federal Reserve or the BoE.
On Tuesday, novice traders may anticipate continuing the downward movement, but the 1.2848-1.2860 zone is currently holding the pair from further decline. A bounce from this area could trigger a slight rise.
On the 5-minute TF, you can now 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. On Tuesday, the UK will release reports on unemployment, jobless claims, and wages. These data points will likely influence only the pair's intraday movements but will not impact the overall trend.
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.
