Like learning to ride a bicycle, you must repeatedly fall before becoming proficient. It is similar to trading, you are often lured by fake signals which ultimately bring losses.
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.
Let’s check out 5 Effective Steps to Avoid Fake Signals
1. Use Daily Time Frame
Your basic mistakes often occur due to simple trading system settings, such as time frames. The choice of time frame determines directly the quality of the signal. It happens because the frequency of the appearance of the candlestick bar depends on the height of the lag time.
According to Forex Training Group , the daily chart is the most watched timeframe by professional hedge funds, dealing banks, large traders, and other major market players that can normally move markets.
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, your head will become dizzy in facing it.
Therefore, you, as a beginner, should use the D1 (daily) option so that the trading signals appear higher than 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 will most likely bounce around that point, except in the case of a breakout (the price moves far through key support/resistance limits).
False signals usually appear before the price moves to touch these limits. 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.
Read more: 3 Main Pillars of Trading Plan that You Should Know
