Filtering Bad and Good Forex Trading Signals.
A particular Forex trading strategy may generate hundreds of price action entry signals. Some of them are bad, and some are good Forex trading signals. Therefore, it’s really important to filter good price action’s signals in order to maximize your profits and mitigate the losses. Below is how to filter price action’s for good Forex trading signals.
1. Look for a Signal with a Protruding Tail. A protruding tail creates a false-break of a support/resistance level. Whenever you have a key support/resistance level, watch out for a false-break/protrusion.
2. Long-tailed Pin Bar. A long-tailed pin bar works really well in trending markets and as counter-trend signals, as a high-probability Pin Bar. Usually a long tail signifies a strong rejection of a price action.
3. Wait for a Breakout Confirmation. As a Forex trader, you should never bet on a breakout. Instead, you should wait for a confirmation that the breakout was valid. And see that the most recent close was above or below the breakout level.
4. Continuation Signals after a Pullback to Support/Resistance. Always try to look for trends and then retracements within those trends. Furthermore, try to figure out signals that form from “value” areas, indicating that the particular trend might continue.
5. Avoid Signals Formed in Tight “Chop”. Trading signals formed during a thick consolidation, or a “chop”, is typically not recommended. Try to look for a clear breakout or some momentum before entering the market.
6. Look for “Confluence”. You should try to utilize obvious hot points in trading sessions, when two or more levels intersect each other.
7. Avoid Signals Formed Out of Nowhere. If a particular signal seems to have formed out of nowhere, and without any confluence, it’s recommended to be avoided.
The most important thing is to train your mind in a way where it would feel natural to take a right decision in any possible trading scenario. This is really tough, and only experience and practice can help you to achieve such a mindset. But once you have it, you can generate good Forex trading signals in a constant way.