A trading signal derives from a trading set-up.
The better the trading set-up, the better the trading signal.
A trading signal is generally the start of a medium term trend (or price move) of the higher term trend.
For example, the medium term time frame of the daily chart is the hourly chart. The medium time frame of the four-hour chart is the fifteen minute chart.
The trading entry is the start of a short term trend of a medium term trend.
The trading set-up is the first indication that a trend or price move is likely to start if there is a trading signal.
The
trading set-up is also the first good reason why one should consider
to take the first step to sell or buy.
The
trading signal is the second good reason why one should take the
second step to sell or buy.
And
the trade entry at a low risk entry point is the last good reason why
it is time to buy or sell the asset.
Warning:
Technical
traders must always
spend
more time to validate the trading set-up
and
close the trade as soon as the signal fails.
The
bottom line when one is dealing with a trading signal is to know if
one has a good reason why one should risk money for the trade or not.
Therefore with three good reasons in place (set-up, signal, entry),
one is less likely to start a stressful trade.
Indeed,
a good trading set-up will attract more market participants. A good
trading set-up can fail if the market environment does not support
it. For example, one identifies a
reliable
bearish trading set-up, but the market is very bullish. Though, there
is nothing wrong with the trading set-up, one should refrain from
trading it when there is no reasons for the market to fall. It is
more prudent to focus on a bullish watch-list at that point in
time.
Another
thing, one ought to bear in mind is that a good bullish trading
set-up can also become useless in a bullish market if new negative
factors
emerge without prior notice.
Though,
everything looks good, one
must always
wait
until conditions become acceptable (in
case the market leaders, indicators (crude oil, gold and USDJPY),
sector or the fundamentals begin to
flash
negative warnings).
One
should not hesitate to cancel the urge to trade a financial
instrument any time the risk increases.
Even
if one is already in the trade, one should be swift in dealing with
trades that are more likely to become liabilities.
Warning:
Note that the terms short, medium and long term trends are relative
to how long one wants to hold a trading position.
Indeed,
a
day trader may consider the daily chart as a long term trend, but a
position trader may call it a short term trend while a swing trader
may refer to the daily chart as a medium term trend.
Problems
With Trading Signals
There
are many problems with the trading signals. For example, technical
traders often think that if there is a trading signal then they must
take that signal.
Really,
one does not have to take every
trading signal.
One
is free to take it or not depending on the market environment or
risks attached to it.
The
trading signal is not the most important thing for a technical
trader, but the set-up.
However,
the trading signal becomes the number one element that one must watch
if one is already in the trade.
Indeed,
traders who consistently trade high probability trading set-ups that
they have taken time to master will do better than others. Moreover,
the root or origin of the trading signal is the trading
set-up.
Types
Of Trading Signals
There
are two types of trading signals. The first is the direct trading
signal that derives from the price action. The second is the indirect
trading signal that derives
from technical indicators. An indirect trading signal ought to be
validated by a direct trading signal to avoid technical trading
mistakes. When one gives precedence to the indirect trading signal,
one is trading the technical indicator instead of the price-action.
Please
trade
firstly and lastly the price-action. Or at least, work on that until
there
is
no need to rely on any technical indicators.
Surely,
most new traders rely on technical indicators, but one must use them
in combination with the price-action and structures. As new traders
become more fluent in the language of the price-action, they can
start to use the Elliott wave patterns, predictive fractal patterns and candlestick chart bars.
If
the trading signal is negated on the signal time frame, one must
close the trade as soon as possible
whether
it is profitable or
not.
The
best bullish trading signals occur at a support level, but best
bearish signals occur
at a resistance key level.
A
trading signal can be weak, mild or strong. A trader who mastered a
trading signal after trading it many times before can easily
determine whether
it is weak, mild or strong..
It
is always prudent that one familiarize oneself with a trading signal
before using it.
A
rotten or useless trading set-up will generate weak or unreliable
trading signals.
Never
take a trading signal that you do not understand or master as a
technical trader.
There
is another trading mistake that relates to trading signals. This
time,
a
technical trader is scanning for bullish stocks on the hourly chart.
He gathered a list of stocks that he wants to swing trade. However,
he uses the hourly chart for the trading signals and ten-minute chart
for the entry.
After
the scan, he will go and
enter
the trade on the ten minute-chart.
To
avoid trading mistakes in that case, he ought to check the daily
chart to see the trading set-ups that have produced those trading
signals on the hourly chart before switching to the ten-minute chart.
Another way that swing trader could avoid mistakes would be to
scan
for bullish financial instruments on the set-up time frame instead of
the signal time frame. Next,
he will manually if possible ascertain their validity before
waiting for a signal and low risk entry point.
In
most cases, traders are repeating the same mistake without knowing
it.
A
trading signal signal can take time to complete. For that reason, one
should stay patient until it
is ready
(well done like a steak) before one will take it.
For
example, a candlestick pattern trader that is trading the bullish
hammer on the daily chart must wait until the first bullish
candlestick bar after the hammer is closed on the daily chart before
he or she will attempt to trade it.
Always
check if the signal is
ready
before taking it.
A
trading signal is an opportunity, and one ought to make sure one gets
the best out of it. Many times, traders can mess up a reliable
trading signal by mishandling it.
It
is OK to admire the trading signal or to be excited about it.
However, one must
adopt
a more composed attitude before taking the signal.
In
effect, one can ask questions like:
Would
the current market environment help?
Which
day or what would be a better time to enter the trade?
Is
there anything that could mess up that reliable trading signal?
All
in all, one will take adequate measures to ensure that one gets
paid.
Conclusion
When
dealing with a trading signal, a technical trader ought to adopt the
attitude of a supermarket manager.
A
good supermarket manager will only buy or sell good quality products
with high margins. His goal is to make profit and that is his number
one determinant. Similarly, a technical day or swing trader must only
take good quality trading signal with fantastic risk-reward ratio.
He
or she must always care about avoiding losses. Like the manager who
knows his products, a technical trader must understand and master the
trading signals that he or she is taking.
Whether
it is a red, green or free trading signal, trade it like a
professional trader with precision.
Is
that too much ask?
May
be, but just keep working on it until there is no more room for
improvement.
It
is always a pleasure for me to share trading tips that can help. I
enjoy writing this article too. My wish is that it helps to correct
those common trading mistakes relating to how to take a trading
signal more precisely.
Please
feel free to share this article on your favorite social website.
It
means a lot to us.
Either
way, thank you for reading and happy technical trading.
This
article is written by George Beaulieu founder
of
http://www.stochastic-macd.com
http://www.24Elliottwaves.com
https://www.dayprotraders.com
Descrption: High probability trading using reliable trading signals at a convergent point.
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