FX Signals: Managing the Trades
Aside the difficulty in determining the trading signal entry, stop loss and take profit, managing the signal after it has been issued is a very demanding task. Assuming the signal is based on technical analysis, the pattern that was affirmed in the charts may be invalidated by the market as time goes by, especially if the trade alert was based on intraday time frames such as 15 minutes or 60 minutes.
Because many trading signals providers do not reveal the trading strategy they used for the signal the trader lacks the ability to use his or her own judgement and determine if and when the signal is not longer relevant.
FX Signals: Breakout and Reversal
Although there are many forms of forex trading strategies we will focus on breakouts and reversal strategies. When the price breaks above the resistance or below the support the price is then expected to resume its trend to the next resistance/support level.
The first flaw of breakout strategies are false breakouts. A false breakout is when the price breaches above the resistance or below the support and then retraces lower below the breached level. There are tools that we will not discuss in this page that are used to minimize the occurrence of a false breakout but of course no technique is bulletproof in the Forex market.
The most common concern for breakout signals is the take profit, especially in intraday time frames. While the target is completely technical, the market may counter the initial target by painting reversal patterns or overstretched indicators that suggest an imminent retracement in the direction that opposes the breakout.
Under such circumstances the signal provider must monitor the market and updates its followers that perhaps it is wise to exit the trade ahead of the take profit. Determining whether to remain or exit the trade often depends on the candlestick closing price.
If a 15min chart is used the signal must be monitored every 15 minutes. If a 60min chart is used the chart must be monitored every hour by the signal provider. The same applies for all time frames. This is not only intensive on the signal provider but to the followers that must constantly monitor their open positions. Failure to do so are likely to increase the odds for a trade being in a profit before reversing and triggering the protective stop loss order.
Reversal strategies are even more demanding than breakouts. Once a reversal takes place and an entry is derived there are many possible scenarios that will negate the anticipated reversal. The signal provider must monitor the progress of the reversal and apply other techniques that affirm the expected reversal (uptrend or downtrend) remains intact.
It is very likely the market may not obtain the target that was set in the signal and requires the signal provider to adjust to the current market conditions. The signal provider may then be pressured to produce results and loosen the stop loss order, which often ends in nothing but losses.
Trading Signals: Aiming for High Quality
At ddmarkets we are using multiple trading strategies. In our global trade alerts we tend to refrain from intraday time frames (unless supported by long time frames such as the daily chart).
This not only enhances the take profit as it is often ranging between 150 pips to over 400 pips but also relieves the pressure of our followers to monitor the markets every 15 minutes and issuing updates on a frequent basis. Although by the book there is no need for us to monitor the markets at an intraday level we are doing so nevertheless to ensure we will not be ‘technically’ surprised by the market.
The stop loss and take profit orders are determined via technical analysis while striving to maintain a healthy risk reward ratio of 1 : 3. Technical setups that have a risk reward ratio of 1 : 1 for example are dismissed.
To ensure our followers do not lose their ability to use their judgement in trading we outline the strategy we used to provide the trade alert. The traders than understand out decision to long or short and what technical strategy is the signal based on.
Any trader that disagree with our analysis has the power to dismiss the trade alert or use lower/higher leverage. Our transparency is why more and more forex traders are choosing ddmarkets forex trade alerts.
We send updates on open trades in regards to partials realization, shifting the stop loss order or exiting the trade ahead of the take profit we set for the trade. Many investment banks manage their signals in the following manner and there is no reason why we should be an exception.
Each update is documented on the trading strategy page after it was sent via email to our followers. To maintain a low drawdown we monitor the number of open trades and their status.
To conclude, fx signals must be constantly monitored once they are issued while exercising multiple trading strategies rather than being dependent on a single strategy.
While this may have worked in the past, at current market conditions multiple strategies must be used to maintain high quality trading signals. Our trades performance include all the trade alerts that were issued since May 2014.