Analysis of Friday's Trades
1H Chart of GBP/USD
On Friday, the GBP/USD pair also demonstrated upward movement, which should not have occurred. On Wednesday evening, the pound plummeted after the FOMC meeting results — a logical reaction. On Thursday afternoon, the pound dropped again following the Bank of England meeting — also expected. However, the pound's rally on Thursday morning and Friday is much harder to explain. Perhaps these were purely technical corrections, but in this case, the decline should resume next week, with the pound likely falling below the 1.2502 level.
On Friday, the UK released just one report — retail sales. This metric increased by 0.2% in November, which fell short of expectations. As such, this report could not have triggered the pound's rise. Similarly, the US data lacked significant resonance and, therefore, could not have caused such a sharp decline in the US dollar.
5M Chart of GBP/USD
On the 5-minute timeframe, three signals were formed on Friday. The first two were particularly challenging. Initially, the price spent about five hours oscillating around the 1.2502–1.2508 area, then lingered for another couple of hours near the 1.2547 level. In both cases, buy signals were generated, and ultimately, the price reached 1.2613, where long positions could have been closed profitably. Around the 1.2613 level, a sell signal also formed, which could have brought profits to novice traders by the end of the day and week.
Trading Strategy for Monday:
On the hourly timeframe, GBP/USD has completed its upward correction. We fully support the pound's decline in the medium term, as we believe this is the only logical scenario. However, it is worth remembering that the pound demonstrates high resilience against the US dollar. As a result, while a downward trend is expected, traders should rely on technical signals. The outcomes of the BoE and FOMC meetings fully support a further bearish outlook, but it's evident that the pound frequently shows unwarranted growth.
On Monday, the GBP/USD pair could resume its decline. While another corrective move is possible, a drop toward 1.2387 appears more likely.
On the 5-minute TF, you can now trade at 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, 1.2980-1.2993. On Monday, the UK will release the third estimate of its third-quarter GDP, which does not bode well for the pound. The British economy continues to edge closer to zero growth, and that says it all.
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.
The material has been provided by InstaForex Company - www.instaforex.com
