How to Trade the EUR/USD Currency Pair on December 31? Simple Tips and Trade Analysis for Beginners

[Ben Graham]

Trade review for Tuesday:

1H chart of EUR/USD

The EUR/USD currency pair continued to trade in holiday mode on Tuesday. Over the past several days, the euro slid down, and yesterday it settled below the ascending trend line. How should one treat such a move? On one hand, it cannot be called a "flat" — the price is moving down rather than sideways. On the other hand, volatility is not just low; it is minimal. On the other hand, the upward trend is broken, and a reasonably strong sell signal has been generated. We believe that all Christmas and New Year trading days can be, to some extent, excluded from the general stream of quotes. What can traders expect after the sell signal formed on December 31? Twenty to thirty pips down? Those can, of course, be captured on the 5-minute timeframe, but one should remember that the main market condition indicator is volatility. If there are no movements in the market, no signal will bring profit.

5M chart of EUR/USD

On the 5-minute timeframe on Tuesday, no trading signals formed; the macro and fundamental background was absent, and the overall daily volatility amounted to 36 pips. A sell signal was formed overnight because the price settled below the area 1.1745–1.1754. Thus, beginner traders can open short positions aiming for a profit of 20–30 pips if they wish to trade on December 31.

How to trade on Wednesday:

On the hourly timeframe, the EUR/USD pair continues forming an upward trend despite the trendline breach. The price may soon retest the area 1.1800–1.1830, which is the upper boundary of the flat on the daily timeframe. It is quite possible that this time we will see an exit from the six?month sideways channel. The overall fundamental and macroeconomic backdrop remains very weak for the U.S. dollar; we expect the pair to rise in the medium term.

On Wednesday, beginner traders can trade from the area 1.1745–1.1754. A consolidation above this area will again make long positions relevant with a target of 1.1808. A consolidation below this area allows opening short positions with a target of 1.1666.

On the 5-minute timeframe, consider the levels 1.1354–1.1363, 1.1413, 1.1455–1.1474, 1.1527–1.1531, 1.1550, 1.1584–1.1591, 1.1655–1.1666, 1.1745–1.1754, 1.1808, 1.1851, 1.1908, 1.1970–1.1988. No important events or releases are scheduled in the Eurozone or the U.S. for Wednesday. Therefore, we can again expect very weak movements today.

Key Rules of the Trading System:

1. The strength of a signal is determined by the time it takes to form the signal (bounce or breakout). The less time required, the stronger the signal.
2. If two or more trades were opened near any level based on false signals, all subsequent signals from that level should be ignored.
3. In a flat, any pair may form numerous false signals or none at all. At the first signs of a flat, it is better to stop trading.
4. Trades are opened during the period between the beginning of the European session and the middle of the American session, after which all trades should be closed manually.
5. On the hourly timeframe, it is preferred to trade only when there is good volatility and a trend confirmed by the trend line or channel, using signals from the MACD indicator.
6. If two levels are too close to each other (5 to 20 pips), they should be viewed as a support or resistance area.
7. Upon moving 15 pips in the right direction, set the Stop Loss to breakeven.

Chart Explanations:

• Support and Resistance Levels: Levels that serve as targets for opening buys or sells. Take Profit levels can be placed near them.
• Red Lines: Channels or trend lines that reflect the current trend and indicate the preferred direction for trading.
• MACD Indicator (14, 22, 3): A histogram and signal line; a supplementary indicator that can also be used as a source of signals.

Important Note: Significant speeches and reports (always included in the news calendar) can greatly influence the movement of the currency pair. Therefore, during their release, it is advisable to trade cautiously or exit the market to avoid sharp reversals against the preceding movement.

Remember: For beginners trading in the Forex market, it is important to understand that not every trade can be profitable. Developing a clear strategy and practicing money management are keys to long-term trading success.

The material has been provided by InstaForex Company - www.instaforex.com