Analysis of previous deals:
30M chart of the EUR/USD pair
The EUR/USD pair began a strong upward movement on Thursday. The price bounced twice from the lower border of the third consecutive horizontal channel and, having settled above it, rushed further up. Thus, for today the EUR/USD pair has passed about 110 points. However, such a strong upward movement was triggered by strong macroeconomic reports and a strong foundation. Today, one of the most important GDP reports was published in the United States, and besides that, its actual value did not correspond to the forecast at all. And this almost always causes a strong market reaction. The US GDP in the third quarter turned out to be much worse than forecasted, which provoked a strong drop in the dollar. In addition, the European Central Bank today summed up the results of its two-day meeting and announced that in the fourth quarter of 2021 the rate of asset purchases will be reduced, which means, in fact, tightening monetary policy. A tightening almost always causes a strengthening of the currency. Thus, the dollar was falling today, and the euro was rising, which was reflected in the chart of the euro/dollar currency pair with such a powerful upward movement. However, in technical terms, this does not change anything for the pair so far, since it is only one day. The price has just got out of the side channel, so it has not yet reached the trend formation.
5M chart of the EUR/USD pair
The technical picture looks just fine on the 5 minute timeframe. Today is a good example of how the pair should trade. When the movements are good, and the signals are strong, and profit is obtained from them. Let's take a look at all the trading signals of today. A sell signal was generated first when the price bounced off the level of 1.1617. After that, the price went down 18 points, which was enough to place a Stop Loss order at breakeven. It was on this order that the deal was closed, since the nearest level of 1.1576 was not reached, and it did not come to Take Profit. But already the second deal - consolidating above the 1.1617 - 1.1622 area - was profitable, as the price started a strong movement after the US and European statistics (the time of its release is marked with a tick in the chart) and continued for the rest of the day. The price crossed the 1.1666 level on the way to the level of 1.1685, so long positions should be kept open. And profit should be taken only around the level of 1.1685, since it was not possible to settle above it. As a result, the profit is about 50 points.
How to trade on Friday:
The pair left another horizontal channel on the 30-minute timeframe, but the trend has not yet come to form. Thus, it is still not very convenient to trade on the 30-minute TF, and we still do not recommend tracking signals from the MACD indicator. We advise you to wait for the formation of a trendline or trend channel. The key levels on the 5-minute timeframe for October 29 are 1.1617 - 1.1622, 1.1666, 1.1685, 1.1704. Take Profit, as before, is set at a distance of 30-40 points. Stop Loss - to breakeven when the price passes in the right direction by 15 points. At the 5M TF, the target can be the nearest level if it is not too close or too far away. If it is, then you should act according to the situation or work according to Take Profit. On Friday, the European Union will publish an important report on inflation for October, but everything will depend on how much the actual value does not correspond to the forecast (3.7% y/y). There will be no important publications and events in America tomorrow.
Basic rules of the trading system:
1) The signal strength is calculated by the time it took to form the signal (bounce or overcome the level). The less time it took, the stronger the signal.
2) If two or more deals were opened near a certain level based on false signals (which did not trigger Take Profit or the nearest target level), then all subsequent signals from this level should be ignored.
3) In a flat, any pair can form a lot of false signals or not form them at all. But in any case, at the first signs of a flat, it is better to stop trading.
4) Trade deals are opened in the time period between the beginning of the European session and until the middle of the American one, when all deals must be closed manually.
5) On the 30-minute TF, using signals from the MACD indicator, you can trade only if there is good volatility and a trend, which is confirmed by a trend line or a trend channel.
6) If two levels are located too close to each other (from 5 to 15 points), then they should be considered as an area of support or resistance.
On the chart:
Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.
Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.
The MACD indicator (14,22,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).
Important speeches and reports (always contained in the news calendar) can greatly influence the movement of a currency pair. Therefore, during their exit, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.
The material has been provided by InstaForex Company - www.instaforex.com