5 Powerful Steps Avoid False Signals in Forex Trading
Let alone beginners, seasoned traders can still experience loss due to the act of false signals. So that loss can be minimized, following 5 powerful steps to avoid it.
Like learning to ride a bicycle, we have to fall many times before becoming adept. Similar to trading, we are often provoked by false signals (fake signals) that ultimately lead to losses. Well, let alone beginners, seasoned traders can still experience loss due to the act of this deceit signal. So that the error can be minimized, here are 5 powerful steps to avoid it!
False signals generally appear when a trader is reviewing the market with technical analysis of various indicators and / or price action patterns. The deceptive signals will tempt a novice trader to open positions too early. Later, the price moved against the position earlier and consequently, the acquisition of pip to minus alias losers.
5 Powerful Steps Avoid False Signals in Forex Trading
Whatever your preferred technical trading and technical strategy, here are five guidance outlines to minimize errors in dealing with false signals:
1. Use Daily Frame Time
Basic errors often occur due to simple trading system settings such as time frame. The time frame option determines the signal quality directly because the frequency of the candlestick bar (bar) appearance depends on the high-lag time.
False signals will appear more frequently at low time frames (below h4). So just imagine if you use the M15 option where every new bar will appear every 15 minutes. The price action patterns will appear in low quality and your indicator will move up and down with high fluctuations. Obviously, the head will be dizzy facing it.
The picture above uses the MACD indicator and M15 time frame, the red circles showing the “choppy” market price movement where the candlestick bar pops up every 15 minutes. As a result, false signals often trick the trader to open a losing position.
Therefore, it is advisable to use the D1 (daily) option for beginners to make trading signals raised higher the validity level.
2. Find Support-Resistance Level
Before reacting to a signal, you need to know where the support and resistance points are located. This is important because the nature of the market recurs. The price will most likely bounce around the boundary, except in case of breakout (the price moves deeper through the key support / resistance limit).
False signals usually appear before the price moves touch those limits. Let’s say when the market conditions are trending a reversal signal appears. If you open a position based on that signal without knowing where the resistance line is, you will most likely be stuck with a false signal.
Check the signal quality by identifying the location of support point and its resistance. Good quality reversal signal when approaching the boundary. On the other hand, the continuity signal can also use the reference to the boundary point as a confluent area.
3. Beware of News & Event
High-impact economic news is able to drive prices without warning from any previous signal. If you capture a signal during or around the time of a news release, it is most likely that the signal is invalid in following the market volatility. This is due to volatile market sentiment during high-impact news releases.
Therefore, you can use the forex calendar to avoid market conditions with such high volatility and risk. High impact news will generally be marked with three-star marks, three bull heads, red, and other highest scales.
4. Reduce Overtrading
The danger of false alarm risk will haunt you if you include traders with a desire to enter the market with high frequency. The Forex market is among the biggest markets with all-time trading opportunities, no wonder many beginner traders are always tempted to open positions whenever a signal from an indicator or a price action pattern appears on their chart pair.
According to some professional traders like Nial Fuller, overtrading or impulse to continuously open and close positions based on low-quality signals (false signals) will not only expose the risk of loss to your account margin, but also the mental stress that will lead to prolonged frustration. According to him, the novice trader must learn to be patient and control his impulse to just react (opening position) only when the best quality signal appears (following the terms of the above three steps).
5. Avoid Inconsistent Trading Systems
Over time, one trader will develop a different trading system / unique from other traders. The key to a trading system’s success is the consistency of the method every step of the system.
In general, beginner traders still do not have a well established trading system. They usually just copy and change the trading system from other professional traders just to look for profit. The problem is, the understanding of one trader can not be unanimously adopted by another trader. As a result, the novice trader just get a false signal from the misuse of a trading system.
False signals are actually the “natural” part of the trading activity. However, the flying hours and skills of each trader will vary with each other in response to these false signals.
Five steps to avoid the false signals above are just basic guidelines. Traders can still develop their own counterfeit anti-signals trading system respectively. The point is, like learning cycling earlier, be prepared to fall and re-rise from past mistakes. All of that includes the inside of the forex trading learning process.