How reliable are day trading signals
Forex Signals - How Forex Trading Signals Can Be Converted Into Successful Trades!
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In order to trade successfully in forex - that is, currency pairs - traders need to have some essential background information at hand. First of all, of course, you should know the exact context of what Forex trading is actually about. In addition, there are a number of forex trading signals that traders should recognize and interpret accordingly as the basis for executing trades. This is how forex trading signals can be converted into successful trades.
Trading signals for Forex investments are just as valuable information for beginners as they are for traders who already have a wealth of experience. An integral part of strategically sensible planning work is the data from the entry and exit times. Furthermore, your own risk management is part of the targeted and correct interpretation of the various forex signals.
Recognize average values as an indication of trends
One of the most important forex trading signals are the so-called "moving averages", which are moving averages for a specific currency pair. Various periods of time from one to about three weeks are common in order to obtain reliable trading signals for Forex investments in this way. A combination of two averages is common - one with a rather short and one with a longer time alignment.
If both cross each other - so usually the faster the slower MA - this is one of the classic Forex trading signals. If, for example, a 7-day average crosses one with a longer duration from the bottom up, this can be understood as a tip for rising prices of a forex pair in terms of the forex signal. The best starting position is the moving averages with clearly recognizable trends. If there are currently sideways trends, these Forex trading signals are prone to errors.
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Forex signals in the form of resistances and supports
The so-called "Support" or "Resistance" variants get by without forex indicators. In good German one can speak of support and resistance here. These forex signals are often characterized by a decent efficiency, if the entry point is chosen wisely.
If a supplementary “stop” is installed, the risk is also lower. Supports as well as resistances are quite simply structured forex signals, so that no complex explanatory models are required. If charts indicate that certain areas of support and resistance will not be broken in the currency pair in question, this can be understood as an indication of a good entry point.
Oscillator values as forex signals
The third model among the forex trading signals are the so-called oscillators. They prove to be helpful in the case of existing sideways phases. Stochastics are one, Relative Strength Indices another variant of these forex signals. As standard models, these forex signals can be found in the vast majority of forex brokers. Both models indicate areas of overbought or overbought. If an RSI is too low, this is a forex signal for a buy, a value that is too high is a clear sell signal. In trend phases, oscillators are a potential source of error and should instead only be used in sideways phases if possible.
While the accompanying averages are very reliable in trend phases, the oscillator values are very reliable in sideways phases. That is one of the reasons why a good trading system consists on the one hand of trend-following indicators and on the other hand of oscillators. While the oscillators can show their strengths in the trendless phases and signal possible entries into Trent at an early stage, the indicators following trend take over the helm once the price has turned into a trend. Here oscillators would produce far too many false signals. Only the combination of the two completes a trading system.
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So that the interaction of these two indicators actually delivers trading signals, rules must be drawn up. So comprehensive are the Forex trading signals not only entries, but also exits and, above all, possible exit variants. Gone are the days when a share was placed in the portfolio based on a buy signal or entry signal and held until you wanted to part with paper. In times when day trading has become fashionable, it is also possible to define possible exits, i.e. day profit levels. But at least as important as entering and exiting are the exit variants, which means that the position must be closed if the price moves in a different direction than expected. The so-called ascent variants are usually defined and hedged with the help of a stop loss.
How good is a trading system anyway?
If you want to assess a system, it is important that the goals are clearly defined from the outset. This not only applies to trading systems, but especially here. Because how do you want to be able to assess a good trading system if the criteria for the assessment are not fixed at all? Is a trading system good when it is profitable? Is a trading system good am the trader not going broke in the end? Should the trading system only work in strong trend phases or should it be profitable all year round? These are all possible scenarios that have to be understood from the beginning when assessing the quality of a trading system.
So that a trading system can be assessed, two different key figures have proven to be particularly good. Payoff Ratio and Trade Ratio. While the payoff ratio indicates the ratio of the average profits of the profitable or winning trades and indicates the ratio to the average losses of the losing trades, the trade ratio determines the hit rate, i.e. the ratio of profitable to deficit trades.
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These two key figures describe the so-called profit factor in relation to each other. A profit factor of one means that the system will not make any losses, but will not make any profits either. Good or very good trading systems achieve a profit factor of around five. But just a good profit factor alone does not matter anything about the quality of the trading system. Only looking at all three key figures separately does a complete picture emerge.
If you only want to compare two trading systems with each other, the time horizon considered is important in addition to the comparison of the three key figures. So give Markus trading systems that result in a very good profit factor, especially in phases with strong trends. However, if you enter a correction phase, which is often characterized by trendless or sideways phases, the picture may look completely different. It is therefore important to be able to look back on a trading system as long as possible. This is the only way to ensure that these trading signals can be traded profitably over the long term.
Conclusion: Always test new Forex trading signals in the demo account
Just because a trading system does not have a sufficient history does not mean that this system or the trading signals have to be bad too. Perhaps the trading system was just being redeveloped.
But especially then it is important not to trade with real money straight away, but to try out the trading system for a certain period of time in a demo account without risk.
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