Friday, 13 September 2019

Some Ways to Avoid False Signals

Like learning to ride a foot, we must repeatedly fall before becoming proficient. Similar to trading, we are often lured by fake signals (fake signals) which ultimately bring losses. Well, let alone beginners, seasoned traders can still experience loss due to the act of this deception. So that these errors can be minimized, here are 5 effective steps to avoid them!

False signals generally occur when traders are analyzing the market with technical analysis of various indicators and / or price action patterns. These deceptive signals will tempt novice traders to open positions too early. Later, prices moved against this position and as a result, the acquisition of pips became minus alias losers.

5 Effective Steps to Avoid Fake Signals
Whatever your main trading strategy and technical analysis, here are 5 guidelines to minimize errors in the face of false signals:

1. Use Daily Time Frame
Basic mistakes often occur due to simple trading system settings such as time frames. The choice of time frame determines directly the signal quality because the frequency of the appearance of the candlestick bar (bar) depends on the high and low time lag.

False signals will appear more often at low time frames (below h4). So just imagine if you use the M15 option where every new bar will appear every 15 minutes. Price action patterns will appear in low quality and your indicator will move up and down with high fluctuations. Obviously, the head will become dizzy facing it.

Therefore, it is recommended to use the D1 (daily) option for beginners so that the trading signals that appear higher the level of validity.

2. Understand the location of Support-Resistance
Before reacting to a signal, you must know where the support and resistance points are. This is important because of the recurring nature of the market. The price is likely to bounce around that point, except in the case of a breakout (the price moves far beyond the key support / resistance limits).

False signals usually appear before the price moves to touch these limits. Say when market conditions are trending a reversal signal appears. If you open a position based on that signal without knowing where the resistance / support line is, you will most likely be trapped by a false signal.

Re-check the signal quality by identifying the location of the support and resistance points. Good quality reversal signal when approaching the limit point. On the other hand, the continuity signal can also use the reference point as a conference area.

3. Beware of News & Events
High-impact economic news is able to move prices without warning from any prior signal. If you catch a signal when or around the time of the news release, chances are that the signal is already invalid in following market volatility. That is because the volatile market sentiment during the high-impact news release.

Therefore, you can use the forex calendar to avoid market conditions with a high level of volatility and risk. High impact news will generally be marked with three star markers, three bull's heads, red and the other highest scale.

4. Reduce Overtrading
The danger of the risk of false signals will haunt you if you are a trader with a desire to enter the market with high frequency. The Forex market is indeed one of the biggest markets with trading opportunities all the time, no wonder that many novice traders are always tempted to open a position every time a signal from an indicator or a price action pattern appears on their chart pair.

According to some professional traders such as Nial Fuller, overtrading or impulses to continuously open and close positions based on low-quality signals (fake signals) will not only expose the risk of loss to your account margin, but also mental stress that will lead to prolonged frustration. According to him, novice traders must learn to be patient and control their impulses to only react (open positions) only when the signal of the highest quality appears (following the requirements of the three steps above).

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