Analyzing trades on Tuesday
EUR/USD on 30M chart
The EUR/USD pair was trading with low volatility on Tuesday. There was no macroeconomic news either in the US or in the EU. However, the heads of the central banks, Christine Lagarde and Jerome Powell, spoke yesterday. The ECB President did not give any new hints to the markets, saying that the regulator would closely monitor inflation and do everything possible to stop its growth. Jerome Powell was talking about the same thing in the evening. In the illustration below, the tick marks indicate the time when the statements were made. The US dollar decreased slightly after Powell's speech but the movement was not strong. It is hard to say for sure whether this was the market's reaction to the speech or not. In general, Tuesday's volatility was only within 55 pips, which is considered average. Despite growth in the second half of the day, the pair remained within the sideways channel of 1.1234 - 1.1360.
EUR/USD on 5M chart
On the 5-minute time frame, the pair's movement was far from perfect on Tuesday. The quotes were fluctuating during the day, but at the same time, no valid signals were formed. The thing is that the price is still in a sideways channel. The levels inside it are either located too close to each other or are constantly changing and correcting because they do not provide adequate resistance or support to the price. As a result, the price tested the first level only in the evening when we should have closed all positions and left the market. The quote once again reached the level of 1.1360 and even settled above it, but after half an hour, it began to decline. Therefore, we are likely to see another false breakout or an unsuccessful attempt to exit the channel.
Trading tips on Wednesday
On the 30-minute time frame, you can clearly see that the price struggles to leave the specified flat channel. Another test of its upper boundary may lead to a new downward movement by 50-60 pips. Besides, a rebound from the level of 1.1360 is unlikely to trigger a movement to the lower boundary of the sideways channel at 1.1234. Eventually, the pair will leave this channel sooner or later but it may not develop a strong uptrend right away. On the 5-minute time frame, the levels for January 12 are as follows: 1.1285-1.1292, 1.1313, 1.1360-1.1366, 1.1387, and 1.1422. We would like to remind you that it is necessary to set a Take Profit at 30-40 pips and a Stop Loss to a breakeven point as soon as the price passes 15 pips in the right direction. Trades can also be closed manually near important levels or after the formation of an opposite signal. The macroeconomic statistics on Wednesday will be very important. The European Union will publish a report on industrial production for November, while the US will release the data on inflation for December. The second report may cause powerful buying or selling of the US dollar.
Basic rules of the trading system
1) The strength of the signal is determined by the time it took the signal to form (a bounce or a breakout of the level). The quicker it is formed, the stronger the signal is.
2) If two or more positions were opened near a certain level based on a false signal (which did not trigger a Take Profit or test the nearest target level), then all subsequent signals at this level should be ignored.
3) When trading flat, a pair can form multiple false signals or not form them at all. In any case, it is better to stop trading at the first sign of a flat movement.
4) Trades should be opened in the period between the start of the European session and the middle of the US trading hours when all positions must be closed manually.
5) You can trade using signals from the MACD indicator on the 30-minute time frame only amid strong volatility and a clear trend that should be confirmed by a trendline or a trend channel.
6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered support and resistance levels.
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 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, and 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 patterns (channels and trend lines).
Important announcements and economic reports that you can always find on the economic calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommend trading as carefully as possible or exiting the market in order to avoid sharp price fluctuations.
Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management is the key to success in trading over a long period of time.
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