How to filter false signals

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dvarrin
279
dvarrin  

Hi,

Often when I open an order on the long side for example, the price is doing a new lower low, triggering my stoploss, just before it goes back up.

Is there a way to filter those wrong signals? Or should I move my stoploss level at the 1.13 expansion Fibonacci level?

Daniel

yaed
5
yaed  

A million ways

dvarrin:
Hi,

Often when I open an order on the long side for example, the price is doing a new lower low, triggering my stoploss, just before it goes back up.

Is there a way to filter those wrong signals? Or should I move my stoploss level at the 1.13 expansion Fibonacci level?

Daniel

There are a million ways. Isnt essentially the question you are really asking really: How to trade?

Well i havent been around here to much lately, ive been active at that other forex site. I cant access it now for what ever reason, so ill make a thread here and answer your question and lets see what happens.

Files:
123_stoch.jpg 364 kb
jturns23
442
jturns23  
dvarrin:
Hi,

Often when I open an order on the long side for example, the price is doing a new lower low, triggering my stoploss, just before it goes back up.

Is there a way to filter those wrong signals? Or should I move my stoploss level at the 1.13 expansion Fibonacci level?

Daniel

Lol, that is the age old question my friend. How do we filter false signals (ranging markets) and only take the "good" signals (trending markets). The correct answer is.......... you can't........ but with good money management and a solid understanding, you will win more often than lose. Thus, in the long run make money. Moving your stoploss down is a recipe for disaster. I know it seems like the market always hits your stoploss and then bounces back, but that's an illusion. So you move your stops to 1.13..... and then that gets stopped out. Are you going to keep moving your stoploss down? That's how you go broke. Discipline is key.

dvarrin
279
dvarrin  
jturns23:
Lol, that is the age old question my friend. How do we filter false signals (ranging markets) and only take the "good" signals (trending markets). The correct answer is.......... you can't........ but with good money management and a solid understanding, you will win more often than lose. Thus, in the long run make money. Moving your stoploss down is a recipe for disaster. I know it seems like the market always hits your stoploss and then bounces back, but that's an illusion. So you move your stops to 1.13..... and then that gets stopped out. Are you going to keep moving your stoploss down? That's how you go broke. Discipline is key.

I think you're right jturns23. Only sometime it's irritating to see that happen again and again. And whatever we use (trendline break, momentum indicators, Harmonics patterns...) there is the same false signal (for example a trendline breakout, but right after it continues to dive lower before reversing. Even when we find divergence there is still a new move making a lower low or higher high. And if I choose not to take the first signal, then in that case it is reversing immediately and the entry is missed. Really irritating!!! ;-) Especially with Harmonics pattern, when the price is going a bit further than the reversal level before it reverses and reach the profit target.

Do you have some advises of good money management? For example if I going long, then I usually put a stoploss below the previous low and if a bar closes below that level I close the trade. But is there a better way to do? Is it possible to reenter if a bar is closing again above the stoploss level?

xx3xxx
1754
xx3xxx  

after breakout , wait for a while before entry

it is a game of CHANCE

dvarrin
279
dvarrin  
xx3xxx:
after breakout , wait for a while before entry it is a game of CHANCE

But then I risk missing the entry :-(

jturns23
442
jturns23  
dvarrin:
I think you're right jturns23. Only sometime it's irritating to see that happen again and again. And whatever we use (trendline break, momentum indicators, Harmonics patterns...) there is the same false signal (for example a trendline breakout, but right after it continues to dive lower before reversing. Even when we find divergence there is still a new move making a lower low or higher high. And if I choose not to take the first signal, then in that case it is reversing immediately and the entry is missed. Really irritating!!! ;-) Especially with Harmonics pattern, when the price is going a bit further than the reversal level before it reverses and reach the profit target. Do you have some advises of good money management? For example if I going long, then I usually put a stoploss below the previous low and if a bar closes below that level I close the trade. But is there a better way to do? Is it possible to reenter if a bar is closing again above the stoploss level?

Money management depends on the system you are trading and a little trial and error. What I do personally, is make sure my stoploss is less than or equal to my take profit. For example..... worst case scenario is my stoploss is 50 and my take profit is 50, or stoploss is 100 and take profit is 100 etc.... My stoploss will NEVER be bigger than my take profit. That's just my way of trading, I'm not saying it's the best, that's just what works for me. I also cannot reiterate discipline. I just made 50 pips shorting the GBP/JPY. I had a 35 pip stoploss and a 50 pip take profit. I took my profit at 50, although had I still been in this trade, I would be up over 80 pips and it still is dropping. I don't play that way though. I set my targets and then I'm out. I've made trades and hit my take profit of 30 pips, and then watched it go 200 pips more. I don't look at it that way. I'll post the trade I just made on the 1 minute GBP/JPY. You can see what I could have made, but like I said, that doesn't bother me.

Files:
jpy.png 20 kb
dvarrin
279
dvarrin  
jturns23:
Money management depends on the system you are trading and a little trial and error. What I do personally, is make sure my stoploss is less than or equal to my take profit. For example..... worst case scenario is my stoploss is 50 and my take profit is 50, or stoploss is 100 and take profit is 100 etc.... My stoploss will NEVER be bigger than my take profit. That's just my way of trading, I'm not saying it's the best, that's just what works for me. I also cannot reiterate discipline. I just made 50 pips shorting the GBP/JPY. I had a 35 pip stoploss and a 50 pip take profit. I took my profit at 50, although had I still been in this trade, I would be up over 80 pips and it still is dropping. I don't play that way though. I set my targets and then I'm out. I've made trades and hit my take profit of 30 pips, and then watched it go 200 pips more. I don't look at it that way. I'll post the trade I just made on the 1 minute GBP/JPY. You can see what I could have made, but like I said, that doesn't bother me.

Thank you for the example and the explanations :-)

Sadly
433
Sadly  
dvarrin:
Hi,

Often when I open an order on the long side for example, the price is doing a new lower low, triggering my stoploss, just before it goes back up.

Is there a way to filter those wrong signals? Or should I move my stoploss level at the 1.13 expansion Fibonacci level?

Daniel

This is an interesting question and I have looked at such an aspect when trading, over and over again. My conclusion was that the signals were not in fact false at all - how could they be? They are simply signals which are unprofitable. However, if you begin to find that the original signal turns profitable after you have been stopped out, as seems to be in your case, then have you considered reducing the size of your initial position and subsequently scaling in?

Sadly
433
Sadly  

Scaling into a position

For example:

Your signal tells you to enter the market at x. You take a position at half your lot size and enter your stop loss which, at this point, would be twice that of your initial stop loss level. You are now in a position where you can take advantage of price action if it goes against you by adding to your position by a quarter more and then once again if things are still not going your way up to your initial maximum trade size. Note: You will need to adjust your stop loss after each trade.

The advantage of such a strategy is twofold: On the one hand you are now able to gain a better average if the market fails to continue in your direction and on the other hand you will be able to increase your position if it does continue in your favour, limiting you loss as you raise your stop to breakeven.

camisa
587
camisa  
yaed:
There are a million ways. Isnt essentially the question you are really asking really: How to trade? Well i havent been around here to much lately, ive been active at that other forex site. I cant access it now for what ever reason, so ill make a thread here and answer your question and lets see what happens.

hello, can you post arrow indicator in your chart, please?

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