Analysis of Tuesday's Trades
1H Chart of GBP/USD
On Tuesday, the GBP/USD pair continued to trade within a horizontal channel, ranging between 1.2502 and 1.2613, thus extending the "New Year flat" phase. Similar to the EUR/USD pair, the price tested the 1.2502 level, which serves as the lower boundary of this channel. As a result, a rebound from this level, followed by a rise in the British pound towards 1.2613, is possible, as the flat phase has not yet concluded. Currently, there are no significant fundamental or macroeconomic factors at play, and the market may take another week or two to fully settle down after the New Year and Christmas holidays. It is still premature to assume that the holiday period has ended and that the pair will quickly enter a trend movement.
5M Chart of GBP/USD
Looking at the 5-minute chart for GBP/USD, Tuesday's trading was quite erratic. The 1.2547 level was largely disregarded throughout the day. In a flat market, it is more important to focus on the upper and lower boundaries of the channel rather than on intermediate levels. Ultimately, the price did bounce from 1.2547 and fell to the lower boundary of the channel. However, making a profit from this signal was difficult due to the presence of several false signals forming near the same level. Clearly, December 31 is not an ideal day for trading.
Trading Strategy for Thursday:
In the hourly timeframe, the GBP/USD pair has completed its primary upward corrective phase and is currently in a consolidation phase. From a medium-term perspective, we fully anticipate a decline in the pound, as this appears to be the most logical outcome. However, it's important to note that the pound sterling demonstrates significant resistance against the US dollar. Therefore, while a decline is expected, traders should base their decisions on technical indicators. The outcomes of the Bank of England and Federal Reserve meetings fully support further downward movement.
On Thursday, the GBP/USD pair is likely to continue trading within the horizontal channel of 1.2502 to 1.2613. There will be limited news today, and expecting an immediate price drop on the first working day of the new year would be overly optimistic. Nonetheless, it is essential to closely monitor price behavior near the lower boundary of this range.
On the 5-minute timeframe, trading opportunities can be found at the following levels: 1.2387, 1.2445, 1.2502–1.2508, 1.2547, 1.2633, 1.2680–1.2685, 1.2723, 1.2791–1.2798, 1.2848–1.2860, 1.2913, and 1.2980–1.2993. Additionally, on Thursday, the second estimates for December manufacturing activity reports will be released for both the UK and the US. We believe these reports are unlikely to cause any significant market reaction unless there are substantial deviations from the initial estimates.
Core Trading System Rules:
- Signal Strength: The shorter the time it takes for a signal to form (a rebound or breakout), the stronger the signal.
- False Signals: If two or more trades near a level result in false signals, subsequent signals from that level should be ignored.
- Flat Markets: In flat conditions, pairs may generate many false signals or none at all. It's better to stop trading at the first signs of a flat market.
- Trading Hours: Open trades between the start of the European session and the middle of the US session, then manually close all trades.
- MACD Signals: On the hourly timeframe, trade MACD signals only during periods of good volatility and a clear trend confirmed by trendlines or trend channels.
- Close Levels: If two levels are too close (5–20 pips apart), treat them as a support or resistance zone.
- Stop Loss: Set a Stop Loss to breakeven after the price moves 20 pips in the desired direction.
Key Chart Elements:
Support and Resistance Levels: These are target levels for opening or closing positions and can also serve as points for placing Take Profit orders.
Red Lines: Channels or trendlines indicating the current trend and the preferred direction for trading.
MACD Indicator (14,22,3): A histogram and signal line used as a supplementary source of trading signals.
Important Events and Reports: Found in the economic calendar, these can heavily influence price movements. Exercise caution or exit the market during their release to avoid sharp reversals.
Forex trading beginners should remember that not every trade will be profitable. Developing a clear strategy and practicing proper money management are essential for long-term trading success.
